"Fung Global Retail recently analysed fashion titans Inditex and H&M to understand the business strategies and USPs that set them apart. H&M produces just 20 per cent of its clothing range in-season, in contrast to 60 per cent at Inditex. Similarly, only 32 per cent factories that H&M uses are located in or close to Europe, compared to 59 per cent of Inditex’s factories. H&M’s revenue growth is being supported entirely by new store openings, and its sales-per-store growth is negative."
Fung Global Retail recently analysed fashion titans Inditex and H&M to understand the business strategies and USPs that set them apart. H&M produces just 20 per cent of its clothing range in-season, in contrast to 60 per cent at Inditex. Similarly, only 32 per cent factories that H&M uses are located in or close to Europe, compared to 59 per cent of Inditex’s factories. H&M’s revenue growth is being supported entirely by new store openings, and its sales-per-store growth is negative. Inditex continues to report positive comparable sales growth and sales-per-store growth. H&M’s product offering is strongly focussed on basic apparel items.
Inditex growth ahead of H&M
Inditex has been growing much more strongly than H&M, and this is due to Inditex’s more comprehensive fast- fashion offering. For products manufactured in proximity markets, Inditex has lead times of around five weeks and the company claims to replenish stocks of existing designs in two weeks while H&M can get fast-fashion products to market in around two to six weeks, reveal Morgan Stanley research. Talking about Asian market, it takes between three and six months for H&M’s Asian-sourced products to reach store shelves. The lead times at Inditex for Asian-manufactured garments are almost the same. By revenue, Inditex is 14 per cent larger than H&M.
H&M does not own factories, while Inditex is vertically integrated. In Arteixo, Galicia, where its head office is located, Inditex owns 11 factories focused on skilled work such as cutting out garment pieces. Third-party factories then stitch such pieces into finalised garments. Zara alone employs around 350 in-house designers, while the company website reveals that the group has design teams of over 700 individuals. H&M, on the other hand, has a much smaller design team, employing 160 designers.
Performance matrix
Inditex is growing much faster than H&M. In the companies’ most recent respective fiscal years, Inditex grew euro-denominated sales at almost double the pace that H&M did. And the growth gap has widened in the first half of the current fiscal year: In first half of 2017, Inditex total revenues grew by 11.5 per cent year on year and comparable sales grew by 6 per cent while H&M grew total revenues by 5.2 per cent in euros, or by 8.6 per cent in Swedish krona. Even though H&M has seen sluggish sales growth, it has continued to grow its orders with suppliers very strongly. As a result, H&M is growing its inventory at a much faster pace than it is growing its sales.
H&M’s revenue growth is being supported entirely by new store openings, and its sales-per-store growth is negative. Inditex continues to report positive comparable-sales growth and sales-per-store growth. The research concluded that a strong fast-fashion positioning is supporting growth at Inditex. H&M’s product offering is focussed much more strongly on basic apparel items, which provides it with less differentiation in the market. Analysts say, H&M will continue to find it tough to maintain underlying sales growth, in the context of heightened fast-fashion competition, including from ultrafast-fashion players such as Boohoo.com and Missguided while Inditex is better placed to compete with such upstart rivals.
