Understanding the Different Business Models

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H&M vs. Zara vs. Uniqlo: An Overview

H&M, Zara and Uniqlo are three international clothing retailers with over 2,000 stores each worldwide. The competitive companies target similar markets but employ different strategies in their business models to manage the distribution of product lines.

These three clothing distributors have differing approaches to their ownership of materials, sourcing of manufacturing and treatment of auxiliary brands.

Here’s a look at each company, what their focus is, who their customers are, and how they have developed their brand over the years.


H&M

H&M, or Hennes & Mauritz, is the oldest of the three. The discount retailer, known for its affordable prices, was founded in Sweden in 1947, and has over the years, grown into one of the most recognizable brands in the fashion industry. H&M is publicly traded, both in its native Sweden and in the United States. It went public in Sweden in 1974.

H&M has expanded considerably over the last few years. It has 4,968 stores open worldwide, as of early 2019, far more physical stores than Zara and Uniqlo, by far. H&M’s infiltration into the U.S. market has also been more prolific than that of its competitors, with 578 stores open. H&M has stated plans to roll out thousands more in the next few years. At the same time, H&M has had to close select stores as many customers take their purchases online, reflecting the broader transition in the retail world from physical sales to a more eCommerce based model.

Despite being known as a budget retailer, H&M also owns COS, which stands for Collection of Style. COS sells higher-end products at higher prices than H&M. H&M also owns seven other brands: Monki, Weekday, H&M Home, & Other Stories, Cheap Monday, Afound and Arket.

Part of H&M’s strategy to boost sales has been to offer customers featured products that have been marketed as designer collaborations with well-known names such as Versace and Alexander Wang. By offering these products within H&M locations, the company boosts its own reputation by partnering with valuable figures in the fashion world, and it offers its customers additional lines for purchase that are different in look and style from the mainstay designs of the company.


Zara

Zara is the youngest of the trio, having begun in Spain in 1975. The company is owned by textile giant Inditex and is its flagship brand. Zara’s ownership of its supply-chain steps allows for more rapid product turnover; Zara can design a product and have it sold in stores a month later.

Zara boasts 2,200 stores in 96 countries. It currently has 87 stores open in the United States, with a majority of its locations worldwide in Spain, where there are 563 locations (including Zara Kids and Zara Home).

Zara’s strategy is to offer a higher number of available products than its competitors. While most clothing retailers manufacture and offer to the public for sale 2,000 to 4,000 different articles of clothing, Zara’s production has been markedly higher, at over 10,000 pieces produced per year. This unique feature of the company’s strategy has allowed Zara to appeal to a broader number of customers with unique tastes.


Uniqlo

Uniqlo was purchased by Fast Retailing Co. in November 2005 and was originally founded in 1949 in Japan. Its business model is based on that of The Gap.

Uniqlo has opened 2,000 stores in 19 markets worldwide. Uniqlo’s introduction into the U.S. market occurred in 2005 with three stores; currently, there are over 50 stores on the East and West Coasts as of March 2019.

Uniqlo’s distribution channels are concentrated in its country of origin; 825 Uniqlo store locations are in Japan. Uniqlo’s distribution strategy has centered on the timing of its products’ introductions into stores, with new products created as a function not of quantity, but of demand. Uniqlo responds to changing trends in Japanese fashion and specifically caters its designs to mimic the minimalistic style that is popular in Japan. This affects the appeal that Uniqlo may have for Western distribution channels, and may be the determining reason behind its low number of store locations in the U.S.


Key Differences

By purchasing and developing brands that have unique styles, H&M hopes to appeal to a wider market of clothing shoppers. Each H&M brand has its own price range and visual concept; for instance, Collection of Style is sold at a higher average price than H&M’s principal basket of products and focuses on the European markets. Alternatively, Monki sells clothing pieces that are half the price of those sold by Collection of Style and features designs that are comparably youthful.

Zara divides the products sold within its stores into lower garments and upper garments, with price points being higher for the upper garments. Zara hopes to be perceived as a high-end retailer with affordable prices. Its flagship stores are strategically opened in key traffic points worldwide that have high real estate costs, such as its Fifth Avenue location in New York City. Zara does not stress advertising as a part of its branding strategy, differing from Uniqlo; the company instead funnels the dollars that would have gone toward advertising into new store openings.

The adapted strategy from The Gap that Uniqlo employs is to position its brand as private-label apparel; the company creates its own clothing, and Uniqlo only sells it within the confines of its brick-and-mortar stores and on its website. The company also uses sporting events to appeal to the general population. The designs that Uniqlo creates tend to be more simplistic and practical than those sold by Zara and H&M, and they appeal to a different audience as a result.


Special Considerations

H&M, like many commercial clothing retailers, outsources the manufacture of its designs to countries such as Cambodia and Bangladesh where labor is cheap. H&M does not directly own any factories and instead partners with 900 suppliers worldwide, most of which are located in Europe and Asia. To transport its goods from factories to stores, the retailer relies on rail and sea as a means to promote efficiency within its internal logistics. The designers of H&M’s products are based out of the company’s home office in Stockholm.

Zara is able to design, manufacture and sell its products in stores quickly because the company owns many of the vertical factors of production. Zara’s main manufacturing plant is in the city of La Coruna, where the clothing retailer was founded. Of all of the products that Zara manufactures, 50% come from Spain, and 24% of manufacturing is outsourced to low-cost producers in Asia and Africa. Zara’s approach to fashion differs from Uniqlo’s in that it attempts to predict customer needs rather than follow current fashion trends. The turnover of products within the store is very high, with an average article of clothing remaining on the shelf for only a month.

Uniqlo manufactures its clothing within Japan. It began using cheap labor in China when Japan experienced a recession in the 1990s. The company has contracts with 70 manufacturers to produce goods. Uniqlo has also forged a partnership with the Japanese denim manufacturer Kaihara Denim.


Key Takeaways

  • H&M, Zara and Uniqlo are international clothing retailers with more than 2,000 stores each worldwide.
  • H&M is the oldest, has the largest number of physical stores, and has expanded from its budget roots to include 8 other brands.
  • Zara is most prominent in its native Spain but has managed to expand globally, expanding its brand to include Zara Kids and Zara Home.
  • Uniqlo is particularly geared towards its native market in Japan but has expanded to include 19 markets worldwide.



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