Business Consulting Assignment Identifying Issues Encounter by H&M
The scenario to be examined in the business consulting assignment is that you have been instructed by your client to produce a report demonstrating your understanding of the client project through the use of secondary research. You are not required to provide a set of solutions to the client’s problem at this stage,
Using the client project brief which you have been allocated, answer all three of the questions below. Ensure work is supported with evidence from research (academic theory and company research) A brief introduction and conclusion is also required which is included in the word count.
1. Clarify who your client is, and what is the problem they are facing
2. Using research, break the problem down by critically analysing and presenting areas of importance to the client such as, competitors, target customer market and influencing factors from the external environment
3. From your above analysis, what are the top three issues the client is facing
Introduction to business consulting assignment
With the rapid growth in globalization, organizations are facing increasing competition and other challenges in the business environment. This has made it essential for them to analyse various internal and external issues to identify possible solutions for resolving them. While it is easier for the firms to minimize their internal issues, it is nearly impossible to predict or reduce the external challenges (Van Akenand Berends, 2018). This is because they include issues like political instability, rapid technological development, social inequity, economic downturn and others that are out of the firms’ control. Thus, the best they can do is identifying top issues and undertaking a proactive approach for addressing them. The purpose of the research report is to identify top three issues of the fast fashion company H&M by analysing areas of importance.
Client Background and Problem Statement
H&M is a fast fashion clothing brand that offers latest styles, designs and inspiration for customers. The brand was founded in 1947 in Sweden. Currently, it has online presence in 53 markets and 75 store markets and the total number of stores is 4455 (H&M Group, 2022). It provides everything including fashion pieces, unique design collaborations, affordable wardrobe essentials, motivational workout wear and accessories. The three fundamental elements deeply rooted in its business are sustainability, price and quality. The mission of the company is to not only enable customers to explore their own personal style but also offer them to build a more sustainable fashion future.
With the outbreak of the COVID-19 pandemic, around 1050 stores of H&M remained closed because of the government rules and regulations. Despite being the world’s second biggest fashion retailer, the brand suffered a 28% decrease in its net sales from previous year because of the stores remaining closed from social distancing and lockdown restrictions (Reuters, 2021). Furthermore, it reported an 88% fall in its profits in January 2021. Apart from the decrease in sales, the brand has been facing other challenges including focusing its business model from store-network expansion to increase online engagement (Hardcastle, 2021). Besides, it has also been focusing more on casual-wear options with the pandemic because of lockdown and home working.
Areas of Importance
There are various fast fashion brands providing competition to H&M including Zara, Gap, Uniqlo, Macy’s, Forever 21 and others. H&M has been primarily dependent on offline market stores, thereby facing increased competition from online competitors (Milne, 2017). This online competition has been affecting footfall of H&M physical stores for quite a long time. Besides, Zara has been the top competitor of this brand in the fast fashion industry as both these companies offer similar kinds of products and services (Tyler, 2018). In addition, the pandemic outbreak has further enhanced the competition from various other e-commerce brands in the fast fashion market.
Target Customer Market
H&M targets customers from children to 45 years old individuals both men and women. These target customers mainly belong to the group of fashionable and trendy consumers preferring shopping as a usual social activity and pleasure in their daily life (Aghdaieand Alimardani, 2015). However, women and young people are mainly attracted to the brand’s fashionable products in the market. While the premium priced products are targeted to customers belonging to the high-income group, the affordable ones are targeted to single or married women and young girls preferring products at low prices. All these customers prefer wearing trendy or fashionable apparel in the market.
External Environment Factors
Political- The outbreak of the COVID-19 pandemic in 2020 created a health and economic crisis throughout the entire world. This forced governments of different nations to ban international travel, implement lockdown and introduce social distancing rules. These measures have severely impacted different businesses including the fast fashion sector (Oraby, et al., 2021). Such rules and regulations of the government led to business closures across various markets, thereby affecting the stores’ sales of H&M across the world. It had to shut down various stores and suffered from significant decrease in both revenues and profits from the offline market.
Economic-The pandemic created a global economic downturn with businesses shutting down and stores remaining closed from lockdown rules. The fast fashion market amounted to $25.09 billion in 2020 that was expected to reach $30.58 billion in 2021 with the compounded annual growth rate of 21.9%. This was mainly because of the companies and brands starting to resume their operations and introduce new ways of conducting their business (Yahoo Finance, 2021). This market is further expected to reach around $39.84 billion in 2025 with a growth rate of 7%. H&M can take advantage of this growing trend to adopt new ways of conducting business to recover its revenues and profits in the coming years. Social- The fast fashion industry has been facing a reduction in spending and poor consumer confidence because of the spread of the disease. Such low consumer confidence has further decreased investors’ intention of making new investments in the sector. Furthermore, the consumers are moving towards online shopping and e-commerce platforms, which brands have to address by shifting their business model more towards online platform (Yahoo Finance, 2021).
Besides, it has also made it essential for the fast fashion brands to focus on developing and launching their web stores for increasing accessibility to the customers.
Technological- The rapid growth in digital and Internet services has made it easier for the companies to undertake more e-commerce services. Besides, increased technological advancements have been making it essential for the companies to introduce more personalization and seamless services to the fast fashion customers. Moreover, such technological tools are further required to provide a virtual display of in-store experience to the customers for convincing them to make more purchases.
Environmental and Legal- Fast fashion brands have been generating various negative effects on the environment. The global fashion industry produces around 10% of carbon dioxide emissions, uses 1.5 trillion litres of water and raising concerns like pollution, chemical waste and micro plastics (Davis, 2020). These issues have also been enhancing the health risks of the individuals. Thus, it has become essential for the fashion brands to introduce and adopt innovative measures, pollution control technology, rental clothes and better recycling processes (Niinimäki, et al., 2020). Besides, the brands need to address legal issues related to underpaid, overworked workers and unsafe working conditions in the fast fashion industry. Moreover, they are required to abide by different environmental laws present both globally and in the regional markets for reducing their environment cost. Thus, these external issues and challenges must be analysed and solutions must be identified for understanding their impact on H&M.
Top Three Issues
Various external challenges or issues have been evident by reviewing different social, political, economic, technological, competition, environmental and other factors present in the fast fashion industry. Out of these, rising competition, environmental cost and changing consumer behaviour are the top three issues that H&M need to address in the coming years.
H&M has been facing increasing competition not only from the existing brands like zara, Forever 21, Macy’s, Uniqlo and others, but e-commerce giant like Amazon has also been one of the top choices of customers with the ongoing pandemic. Increased competition is likely to decrease the market share and profit percentage of H&M if it fails to introduce new products or services and change its business model to adapt to the online shopping trend (Turkerand Altuntas, 2014). Furthermore, it has also been facing threat of new firms entering this fast fashion industry because of the high market growth and market attractiveness. This makes it one of the top three issues to be addressed in the coming years.
Furthermore, consumers have been inclining towards online shopping instead of in-store shopping not only because of the pandemic but also because of its ease of serviceability and accessibility. H&M has been mainly dependent on its offline stores, thus, it has become essential to transform its business model to digital shopping platform for catering to this new consumer behaviour. Thus, it is another priority or issue that the brand needs to address.
Lastly, the environmental cost of fast fashion industry is quite high. H&M is responsible for majority of the carbon dioxide and greenhouse gas emissions being one of the world’s largest fast fashion brands. It also uses significant amount of water and other resources for its business operations and manufacturing, thereby contributing towards depletion of natural resources in the industry.
The report focussed on identifying top three issues of H&M by analyzing different external challenges. In this regard, it first explored the current problem facing the fast fashion brand. The second section of the report analyzed the competition and target customer market of H&M to identify target customers and competitive intensity in the industry. Then, it focused on analysing different political, economic, social, technological, environmental and legal factors. These factors were helpful in determining threats and opportunities for the brand. Thus, such analysis helped in identifying the top three issues facing H&M, namely, intense competition, changing consumer behaviour and environmental concerns.
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