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H&M Turkey and Online Shopping

Tarek H.Agha

Master of Business AdministrationGraduation Project

Project Supervisor: Onur Özçelik

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Abstract

H&M Turkey and Online Shopping

Tarek H.Agha

December 2015

Fashion retailing is a tough business; changing consumer trends and technological improvements constantly pressure retailers to improve their offerings. With the proliferation of the mobile internet retailers are scrambling to offer their customers more and more touch points to interact.

Ecommerce plays the vital role of the both Government and Private sector Organization as it is makes more convenient and effective process. Therefore people also have to follow the concept as it is allows the more efficient at the day today busy environment.

Following chapters of the project contains a background about the apparel and textile industry, then moving to the textile history in Turkey, afterwards information about the ecommerce and the its various types, benefits of e-commerce and the future of it.later there will be a tour over the history of the online shopping then will go deeper to have a look at the online shopping in Turkey. Then comes the core part which is H&M with a general view over the company’s history and sub-brands and then will discuss the the online policy in the UK and then will come to the main question which is why there is no online shopping in Turkey, some assumpitions will show up to end the some recommendations and conclusion.

Keywords: Retailing, Textile Industy, E-Commerce, H&M, Online Shopping

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Acknowledgments

This work is dedicated to the memory of my father Muhammad Hamza H.Agha who passed away few weeks ago and i haven’t seen him and the other family members for more than 4 continuous years.

To my mother Feton Drak Al Sibai who has been strong and steadfast support in my whole journey.

To my brother Alaa and my sisters Shouaa and Layla.

To My aunts Gossoon and Nisreen and My uncle Wasfe.

To my cousins Nezar, Aboudi and Shahi.

To the souls of my beloved aunt Shahnaz and grandmother Hayat.

To my advisors Mr. Onur Özçelik and Mrs. Tutku işçioğlu who gave me valuable info during their classes, honored me with their supervising, supported me and showed lots of patience during the Project writing period.

To my teacher Mr. Mehmet Çiçek who had a big belief in me especially about my future with H&M.

To my closest friend Amal (means hope) who really gave me lots of hope, pushed me all the time and never gave up on me.

To my dear friends Omar Bayerli and his wife Noor Al Shamma for their great help, inspiration and being there for me during one of the toughest periods of my life.

And finally to my endless love which inspired and inspires me all the time and which the whole story was about…H&M.

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Table of Contents

Abstract............................................................................................................................................2

Table of Figures...............................................................................................................................6

1. INTRODUCTION.......................................................................................................................7

2. A WORLDWIDE FASHION RETAIL LEADER: H&M and TURKEY................................10

2.1. Clothes retail market of Turkey..........................................................................................10

2.2. Historical Background of H&M.........................................................................................15

2.3. H&M in Turkey..................................................................................................................21

3. E-COMMERCE OF H&M: CASE OF TURKEY....................................................................22

3.1. E-Commerce Background...................................................................................................22

3.1.1. How it works................................................................................................................24

3. Payment Processing Options..............................................................................................26

There are three payment processing options: A. Third Party Payment Processing Software,

B. Internet Merchant Account, and C. Manual (Offline) Payment Processing (E-Commerce:

Purchasing and Selling Online, n.d.)......................................................................................26

3.1.2. Current Happenings in the E-business World..............................................................27

3.1.3. The Origin of E-commerce...........................................................................................28

3.1.4. The Role of the Internet in E-commerce......................................................................29

3.1.5. E-business Models........................................................................................................30

3.1.6. Advantages and Disadvantages of E-commerce..........................................................34

3.2. E-Commerce in Turkey.......................................................................................................35

3.2.1. Online Clothing Retail in Turkey.................................................................................37

3.3. H&M Online Stores............................................................................................................39

3.4. H&M Online Presence in Turkey: Assumptions................................................................42

3.4.1. Need to Focus on Physical Stores................................................................................42

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3.4.2. Risk of losing traffic in physical stores........................................................................43

3.4.3. Price considerations......................................................................................................45

3.4.4. Inventory and delivery..................................................................................................45

3.4.5. Security and privacy issues..........................................................................................47

3.4.6. Culture and customer preferences................................................................................48

4. CONCLUSIONS AND RECOMMENDATIONS....................................................................50

BIBLIOGRAPHY..........................................................................................................................54

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Table of Figures

Figure 1: Clothing and Footware Retailing in Turkey, Sales Value (US $ bn), 2007-2012.........11

Figure 2: Protecting Transaction Information Through a Secure Server......................................26

Figure 3: Popular products in Turkey............................................................................................37

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1. INTRODUCTION

Clothing retail industry today is one of the largest and most competitive industries in the

world. In 2012, the industry was valued at USD 225 billion in the US alone (Apparel market size

projections, 2012). The diverse industry ranges from the production of textiles and fabric to the

transformation of these fabrics into clothing, footwear and accessories.

The industry has its roots dating back to the late Stone Age, when Europeans used to sew

garments of animal skins using fine bone needles (Clothing and footwear industry, n.d.). The

equipment used in the production and fabrication of clothes remained simple and performed by

hand until the 18th century, when foot- and-water-powered machinery for spinning and weaving

was invented, enabling clothes to be factory-produced (Clothing and footwear industry, n.d.).

The next major breakthrough was the invention of the sewing machine in 1830. This was

followed by several industry-changing inventions, including the band-knife machine, which was

introduced in England in 1860, Spreading machines, which were invented in the late 1890s, and

the Buttonhole machine, which was also introduced at the end of the 19 th century. All of these

development made factory production of clothing economical and improved the quality and

speed of production (Clothing and footwear industry, n.d.).

As late as the first half of the 20th century, the apparel industry was largely concentrated

in the United States and the United Kingdom. The profile of firms was diverse, consisting of

contractors, who transformed raw materials into apparel; jobbers, who made garments;

manufacturers, who bought raw materials, designed, made and sold the products to wholesalers;

and manufacturer-distributors, who sold their products in their own outlets. By the 1950s, other

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countries started to expand and develop their apparel industries (Clothing and footwear industry,

n.d.). Besides the US and the UK, Scandinavians, Belgium, Canada, Japan, the Netherlands,

South Africa, and Australia notably expanded their industries. In addition, many firms expanded

their operations by diversifying into multiple areas of production, such as producing men and

women clothing (Clothing and footwear industry, n.d.).

Several statistics of the growth of the ready-made clothing industry during the twentieth

century evidences its growing importance in the economy. In the US, capital invested in the

clothing industry jumped from $541 million to $2 billion over the period from 1899 to 1948. In

addition, the workforce of the industry increased from 225,000 in 1900 to 824,000 in 1950. By

1957, Americans’ spending on clothing exceeded $25 billion a year, which is almost eight times

larger than the amount spent on private education as a whole and almost double the amount spent

on purchases of vehicles in the same year (Dictionary of American History, 2003). With the

growth of the industry, giants started to rise from all over the world, including Spain’s Zara,

United States’ Gap, and Sweden’s Hennes & Mauritz (H&M). International trade increased and

the industry started to follow new trends and utilizing new technologies.

However, the market remains very competitive with its continuously changing trends and

customers’ tastes. In this very fluid market, being fast, flexible and responsive is a key to

creating a competitive advantage (SGS, 2010). The global financial crisis of 2008 didn’t make

the competition any less fierce; the increasing material and operating costs now place more

pressure on companies to shorten lead times of product, and follow just-in-time production

practices to reduce their inventory holding costs and maximize their profit (SGS, 2010). This

concept, referred to as “fast fashion,” is mainly a quick response strategy to shorten products life

cycle to serve the young segment of the market who want to buy trendy clothes at a low price.

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Fast fashion demands accurate anticipation of new fashion trends, lean manufacturing practices,

highly integrated supply chains and most importantly, an efficient distribution system (SGS,

2010).

Amid the increasing competition, some companies started to seek new ways to sell their

products and adapt to the changing technological needs of the market. One of the relatively

recent industry-changing trends was the introduction of retail clothing on e-commerce. Countries

and clothing retail companies have adopted e-commerce to varying degrees. This paper will

focus on the case of H&M and its online retail policy in Turkey. The paper will provide a

background about Turkey’s clothes retail market and H&M’s presence globally and in the

Turkish market, then will move to specifically discuss the case of Turkey’s clothing retail on e-

commerce, explore H&M’s online retail policy in Turkey, and analyze the reasons for its online

inactivity.

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2. A WORLDWIDE FASHION RETAIL LEADER: H&M and TURKEY

2.1. CLOTHES RETAIL MARKET OF TURKEY

Turkey has a newly industrialized economy based on its agricultural, textiles, motor

vehicles, construction and electronic industries. The textiles industry is a well-established,

diverse and huge sector in Turkey, with exports of $13.98 billion in 2006. In 2013, the industry

accounted for 7.1% of Turkey's GDP, 15.0% of its industrial production and 27.6% of its

manufacturing workforce. In the same year, its exports, valued at US$27.7 billion, were

equivalent to 18.2% of Turkey's total exports (Prospects for the textile and clothing industry in

Turkey, 2014). The industry combines cotton and synthetic fabrics, home textiles, ready-wear

and apparel (Apparel & textile industry, n.d.).

The textile industry of Turkey dates back to the Ottoman period during the 16 th and 17th

centuries. Even at that time, it was widespread and at advanced levels. It greatly developed

during the 20th as the production capacity increased between 1923 and 1962 (Turkish textile

industry, n.d.). The rapid growth of cotton production, which is the main raw material of the

textile industry, further increased the development of the sector in the following years (Turkish

textile industry, n.d.). The industry was mainly dependent on small, low-capital family run

operations until recent times (Apparel & textile industry, n.d.), when the market started to open

to foreign contributors in the 1980s (Turkish textile industry, n.d.).

Today, the country has over 180,000 clothing producers which have large-scale

operations, each employing more than 150 employees and achieves more than $15 million of

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sales annually (Apparel & textile industry, n.d.). In addition, Turkey is now the sixth largest

ready wear and apparel producer in the world and the second largest supplier for the European

Union after china. Many of the most famous textile brands, such as H&M, Hugo Boss, Zara,

Esprit, Nike and Adidas source their production facilities to Turkey, which further contribute the

growth of the market (DW, 2014). On the other hand, many Turkish companies created their own

patented brands and started expanding domestically and internationally, both in developed and

emerging markets, through their effective distribution policies and franchising systems (Turkish

textile industry, n.d.). The following figure summarizes the size of the clothing retail industry in

Turkey.

Figure 1: Clothing and Footware Retailing in Turkey, Sales Value (US $ bn), 2007-2012

As evidenced in the figure above, the Turkish economy contracted in 2009 during the

global financial crisis, but recovered strongly in 2010 with growth of 10.0%. This growth is

supported by domestic demand, and further increased by relatively relaxed credit conditions. The

industry slowed down again in 2011, while 2012 saw a more positive growth but at a much

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slower rate. Pressure in 2012 was from sharp rises in inflation and interest rates and some

additional domestic risk from the Eurozone debt crisis (The Turkish retail market, 2013). Clothes

and footwear industry is forecasted to grow with a CAGR of 8% in the next 3 years to become

$37 billion in the year 2018 (Deloitte, 2014)

The retail sector in Turkey has been one of the most popular and appealing sectors to

consumers. The disposable income per capita increased with a CAGR of .9% over the 5-year

period from 2008 to 2013 and became $8,895 in 2013. The growth is expected to continue until

the figure exceeds $13000 in 2018(Deloitte, 2014). In spite of the notable volatility of the

Turkish currency and the increased strictness of credit card regulations in the year 2013,

Discretionary spending remained important for Turkish consumers, which increased activity in

the retail sector and invited international brands to continue entering the market (Deloitte, 2014).

As a consequence of this growth, Consumer Confidence Index reached a high of 76.00 in May

2014. The continued use of credit cards was increasing at an accelerated rate. The total value of

credit/debit dealings increased by 21% year-over-year in 2013, while for 5-year period from

2008 to 2013 is now c.15% (Deloitte, 2014).

One of the important factor that contributes to the growth of the ratil industry is the huge

investments in shopping malls which increases the area available for lease for global and local

brands. Over the 5-year period from 2008 to 2013, the total area available for lease and the

number of malls greatly increased. This was driven by the increased competition, which led

investors to invest in building larger malls to differentiate themselves and attract a larger number

of customers (Deloitte, 2014). Istanbul is the main shopping city in Turkey. It is the city with

largest number of shopping malls, it is the first destination for high-end luxury international

brands and is the number one choice for international companies who are trying to establish

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themselves in the country. It has the largest bazaar in the country, which has more than 4,000

shops, and multiple high-end street locations such as Istiklal Caddesi and Bagdat Caddesi, both

of which are known for being home for international fashion brands (The Turkish retail market,

2013).

Istanbul has around 40% of all shopping malls and centers space available in Turkey,

followed by the capital, Ankara. The first shopping center which had the large format build (with

area more than 39,999 m²) in Turkey was built in 1988; the Galleria in Istanbul, which has an

area of 42000 m2 (The Turkish retail market, 2013). Other malls which were built from that time

till the late 1990s where of the smaller build, below 40,000 m2. Since the late 1990s, more large

build centers were completed. Thirty large projects were delivered between 2008 and 2013, and

nine openings were done in 2011 alone (The Turkish retail market, 2013).

Even though modern style shopping malls are gaining increased popularity, factory or

designer outlet center style emerged because of the increased cost sensitivity of consumers in the

retail industry (The Turkish retail market, 2013). “The four largest factory outlet centers (all over

50,000 m²) are Viaport, 212 Istanbul, and Starcity (all in Istanbul), and Optimum Adana

shopping center in Adana.” (The Turkish retail market, 2013, para. 6). One major event was the

Fashion Street opening in 2011, which is an extension of Ankara’s Forum Outlet. It specializes

in retail of luxury international brands such as Dior, Gucci, Prada, and Yves Saint Laurent (The

Turkish retail market, 2013).

The increase in available retail space was coupled with the growth of international brands

of retail, especially in 5-year period from 2008 to 2013 which saw remarkable growth. Examples

such as Marks & Spencer and GAP were already well established before that period and

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continued to expand afterwards. Others such as H&M and Decathlon newly entered the market

in 2010 and expanded in 2011 (The Turkish retail market, 2013). Zippy’s, the Portuguese

children’s clothing retailer entered the Turkish market in 2011.Demand for available prime retail

space stabilized in 2011, although central locations remained an interest for foreign retailers.

After that, in the second half of 2011, uncertainty about global economic conditions made

foreign investors more cautious (The Turkish retail market, 2013).

There are many reasons behind the Turkish success in this industry. The country’s strong

production of cotton and its proximity to European markets as well as emerging markets are two

the main factors behind its clothing and textile industries’ success. Their rapid delivery times of

two to three weeks are much more competitive compared to two to three months to that of the

Far East (Turkish textile industry, n.d.). Another advantage is that their production standards

match internationally accepted standards, as the nation’s laws ban the use of “carcinogenic azo

dyes” in clothing and apparel processing and manufacturing, unlike some Asian manufacturers

who still utilize such materials (Turkish textile industry, n.d.). Further advantages of the

“industry are its highly skilled workforce, combined with the adaptability and entrepreneurship

of the Turkish people, the nation’s telecommunications infrastructure and a liberal foreign

exchange regime,” in addition to advanced production equipment (Turkish textile industry, n.d.,

para. 4).

Despite these advantages, the sector still has its weaknesses. The most important

weakness of the textile and apparel industry is that its labor cost advantage is declining over the

years. The average wage per hour more than doubled over the years from 1980 to 1996 (Apparel

& textile industry, n.d.). In addition, labor wages in Turkey are greater than those in China,

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India, Indonesia and Thailand by four or five times. The energy costs and financing costs are also

more expensive than the Americas and Europe (Apparel & textile industry, n.d.).

2.2. HISTORICAL BACKGROUND OF H&M

Hennes & Mauritz, the famous Swedish multinational giant, or H&M as more commonly

known, is a clothes retail company known for its stylish and fast-fashion for women, men,

teenagers and kids. It has more than 3,700 in 61 countries and employs around 132,000

employees as of 2015 (H&M, 2015). Since it was found 67 years ago, H&M has built and

maintained its brand and its loyal base of customers all over the world to become the world’s

second largest retailer in the industry of clothing. They are partners with 800 factories where

they manufacture clothes and accessories and keep their stocks. Most of the creative design work

of H&M is performed in Sweden, where designs get approved, production plans are finalized and

important decisions relating to distribution are taken (H&M Success Story, n.d.).

The company was founded in 1946 when Erling Persson, the company founder, came up

with the idea of a business that provides affordable and fashionable clothing. The first store was

opened in 1947 Västerås, Sweden "Hennes,” which only sold women clothing. The name in

Swedish means “hers” (H&M, 2015). In 1968, Persson bought Mauritz Widforss, the hunting

apparel retailer, which resulted in the introduction of a collection of menswear in the product

range, in addition to changing the name to "Hennes & Mauritz" (H&M) (H&M, 2015).

The company has a long and very successful expansion story. In 1964, the first H&M

store open outside Sweden, in its neighboring country, Norway. Twelve years later, in 1976, the

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first branch outside Scandinavia opens in the United Kingdom’s capital, London. One year later,

the company opened Impuls stores, which focuses on teenagers. They also started selling

cosmetics. In the 1980s, the company expanded into Germany and the Netherlands, followed by

the expansion in France in 1998. The company finally entered in the US in 2004 when it opened

its first store in New York’s Fifth Avenue. In 2004, the company makes a big step with its

collaboration with designers, including Karl Lagerfeld, followed by ones with Roberto Cavalli,

Jimmy Choo, Versace, and others (H&M, 2015).

The first stores opened in the Middle East in 2006 were via franchising. Later in 2007,

the company registered its first presence in the Far East with its first stores opening in Hong

Kong, Tokyo and Shanghai. In 2008, the company acquired other brands, including Weekday,

Monki and Cheap Monday, as means of diversifying and expanding their operations. In 2009, the

company opened its first store in Russia and made a significant expansion in Lebanon where the

store quickly gained popularity. In the same year, the company made another move for

diversification when it launched H&M Home, and opened Weekday and Monki branches in

Germany (H&M, 2015).

In 2010, the first H&M store opened in Turkey, our country of interest. In the same year,

Israel opened many stores via franchising (H&M, 2015). The company also became the world’s

largest consumer of the sustainable organic cotton (H&M, 2015). In the same year, the company

opened its first H&M Home stores outside Sweden and Monki expanded into Far East markets.

In 2011, the company expanded into more markets, such as Croatia, Romania and Morocco. The

company started the H&M Incentive Program in the same year, which is a recognition and

reward program for all of its employees (H&M, 2015). One year later, the company registered its

first presence in Bulgaria, Latvia, Mexico, and Malaysia. Monki brand significantly grew in

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China in the same year. Finally, in 2013, H&M opened its first store in Latin America with its

expansion into Chile. In the same year, more stores were opened in Serbia, Estonia, and

Lithuania (H&M, 2015).

The good business acumen and an eye for fashion are not the only keys to H&M’s

success. The company takes pride in its great choices of locations for new stores in new areas

and countries (The history of H&M, n.d.). They choose the best locations for business and lease

the store area instead of buy it in order to remain flexible and respond quickly to the

continuously changing environment and market conditions of Retail. They also make sure that

they have stores in the most attractive and important streets and shopping centers in every market

that they enter. New H&M stores are usually run by H&M, except for the markets where they

collaborate with their franchising partners, although franchising is not part of their general

strategy for expansion (H&M “Global Expansion,” 2015).

H&M has a growth target to boost the number of stores by 10 to 15 percent every year,

and increase sales in comparable units at the same time (H&M “Global Expansion,” 2015). This

plan includes H&M in addition to other brands under the company umbrella including COS,

Monki, Weekday, Cheap Monday, & Other Stories and H&M Home. The impressive pace for

expansion continued in 2015 with 400 new stores in net. Most stores opened in 2015 as planned

in the United States and China. The company is aware that there are still new opportunities for

growth in existing and new markets (H&M “Global Expansion,” 2015).

The many years of growth and continued success have given the company a strong

financial position, which enabled the company to capitalize on each business opportunity and

created a strong potential for expansion that focuses on quality, continued profitability and

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sustainable development. Every time the company wants to enter into a new market, city or

country, they conduct an assessment of the potential of the market. This assessment is based on

factors such as demographic structure, economic growth, purchasing power and disposable

income, political risk, environmental sustainable development and social concerns (H&M

“Global Expansion,” 2015).

The company’s business concept is “Fashion and quality at the best price in a sustainable

way.” (H&M, 2015, para. 1). H&M tries to ensure that they always have the best offering for

customers in each and every country and store. They offer wide-ranging collections that have

great variety for men, women, children and teenagers (H&M, 2015).

The challenge is to focus on design, sustainability and quality while keeping the price at

low levels: They inspire to always offer unique fashion with geat value for money. For them,

quality is the most important consideration, from initial idea and design to final product. They

aim to always offer quality that exceeds their customers’ expectations (H&M, 2015).

They do that through their unique strategies of:

“In-house design” (H&M, 2015, para. 6).

“No middlemen” (H&M, 2015, para. 6).

“Large purchasing volumes” (H&M, 2015, para. 6).

“Buying the right products from the right markets” (H&M, 2015, para. 6).

“Efficient logistics” (H&M, 2015, para. 6).

“Cost-consciousness in all parts of the organization” (H&M, 2015, para. 6).

Another important consideration of their strong offers is that they should remain the more

environmentally sustainable choice. They devote a lot of time and resources to research methods

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to increase sustainability (H&M, 2015). Sustainable development is a main concern to the

company and they actively look for ways to improve current and new stores and make them

more sustainable in the long run. This means that they try to reduce waste by recycling, using

more efficient power and water systems and selecting environmentally friendly materials, such

as recycled materials and certified wood (H&M “Global Expansion,” 2015).

As part of their efforts to become more sustainable, the company launched its Conscious

program. The H&M Conscious Foundation is an organization that is independent and works to

initiate long-term positive change for communities and the environment. The issues that they are

currently focusing on are “Education, Clean Water and Strengthening Women” (About H&M

Conscious, n.d., para. 1). All of these three issues are derived from the UN Millennium

Development Goals. Issues where selected by voting where before the voting, experts selected

different hot topics and issues to be included in the voting process. The foundation is a partner

with global and local organizations that are active in these three areas to be able to make a

difference as quickly and efficiently as possible. This foundation works as a complement to

H&M’s social responsibility efforts. Since 2013, the Persson family, the family of the founder

and CEO, has donated around SEK 700 million to this foundation, in order to make a long-

lasting change for people and communities (About H&M Conscious, n.d.).

They state: “Looking good should do good too. That’s what H&M Conscious is all about

– it’s our promise to bring you more fashion choices that are good for people, the planet and your

wallet” (About H&M Conscious, n.d., para.1). H&M believes in a future where fashion is better,

where fashion does good while looking good. The Conscious Foundation is part of their plan to

make this dream come true. The Foundation is built on seven commitments. Each commitment is

linked to hundreds of actions. These actions are divided into short term and long terms and can

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be big or small, so that H&M can follow all ways to make a better future for fashion and the

communities where it exists (About H&M Conscious, n.d).

H&M sets challenging targets for itself to make sustainability stylish and style

sustainable. They aim to help people express themselves and their individuality and feel

connected to what they wear. The CEO, Karl-Johan Persson says: “I’m very excited to see the

progress we’ve made so far and how this will help us to make you an even better offer – and

create a more sustainable fashion future"(About H&M Conscious, n.d., para.4).

Their seven commitments are:

Providing stylish fashion for customers who are conscious.

Choosing recognized responsible partners.

Being ethical and doing the right thing.

Be friendly and smart towards the climate.

Reducing waste, reusing materials, and recycling.

Using environmental resources in a sustainable manner.

Helping communities become stronger (About H&M Conscious, n.d.).

H&M invites their customers to join them in their journey and give them suggestions to

make the world a better place through their entire supply chain, from improving the lives of

cotton farmers to creating sustainable clothes that last longer (About H&M Conscious, n.d.).

H&M has a unique strategy where they don’t own factories. Instead, they have close,

long-term partnerships with independent suppliers from which they buy their products. This

structure in the supply chain reduces waste and brings about long-term benefits for the

communities and the environment (H&M, 2015).

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2.3. H&M IN TURKEY

H&M opened its first store in Turkey in 2010 in the Forum Shopping Mall in Istanbul.

The move was part of H&M’s continuous thirst for expansion into new areas where they see a

potential customer base. The CEO, Karl-Johan Persson, said upon opening the store:

“We are very pleased to open our first store in Turkey. It is an interesting market with a

large, young and fashion-conscious population, which offers great potential for future

expansion. Since long, we have business relations with Turkey through our production

office. Now we are looking forward to offering customers in Turkey fashion and quality

at the best price, says Karl-Johan Persson, CEO of H&M.” (H&M Istanbul, 2010, para.

2).

The store opened was well received and was quickly followed by many others. The store

opened its largest branch in Turkey in Ankara in 2012, after it had earned loyal followers in

Istanbul. Today, there are more than 30 H&M stores divided among several Turkish cities (H&M

Istanbul, 2010).

3. E-COMMERCE OF H&M: CASE OF TURKEY

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3.1. E-COMMERCE BACKGROUND

The rise of internet use around the world has created many ways in which it can be used

for life-changing innovations. One of the most exciting ways and interesting side-effects of this

internet revolution is the emergence of a new form of business: electronic business, or more

commonly known as e-business. E-business emerged as an alternative to the conventional

methods of conducting daily business activities. The concept can be simply explained as using

electronic technology to conduct usual business transactions. We live in the age where

everything is electronic in one way or another, and business is no exception. The evolving

structure of the web is transforming from independent websites into interconnected market

places (E-business and e-commerce, n.d.). “The phenomena of aggregation, portals, large

enterprise sites, and business-to-business applications are resulting in centralized, virtual places,

through which millions of visitors pass daily” (E-business and e-commerce, n.d., para. 2).

E-business has today become one of the standard operating procedures for most large

companies around us. The requirements for setting up and running an e-business that can handle

a large number of transactions can be grouped into technical, managerial, marketing and

advertising capabilities. Businesses want their consumers to be able to access their services 24/7.

The easiest way to do that is through being connected online (E-business and e-commerce, n.d.).

Of course, the service has to be fast, reliable, user friendly and functional in order to serve the

customers’ purpose and succeed against competition (E-business and e-commerce, n.d.).

E-business is not limited to commercial transactions. It exists any time a company relies

on electronic technology to perform any business process. Therefore, it includes everything from

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sales to data processing to electronic exchange of data (E-business and e-commerce, n.d.). Many

firms have selected to use e-business since they have recognized its potential and ability to

improve efficiency, provide unique and innovative capabilities, and enhance the quality of their

operations. One important point to be noted is that e-business provides a fundamentally new way

of conducting business affairs. It is not simply a new tool that fit into old systems and methods.

This is way switching to an e-business model requires a lot of effort and time. E-business needs

companies to learn quickly how to implement and adjust to the change with a steep learning

curve and critically re-evaluate their existing business practices. A carefully designed strategy

must be put into place in order for the change to provide its intended effects (E-business and e-

commerce, n.d.).

E-commerce is a sub-category of e-business which specifically concentrates on

commercial transactions. Commercial transactions are the provision of good or services in

exchange for other goods or services of comparable value or for cash (E-business and e-

commerce, n.d.). Since e-commerce is a sort of commerce, all criteria that are required for the

success of regular commerce, like pricing, marketing, building brand value, and maintaining a

strong customer base, apply to e-commerce. At the same time, e-commerce has other key success

factors that are unique to this form of business, such as technical expertise and providing user-

friendly websites. E-commerce provides a new definition for competition by providing new

content and context for information and new methods of delivering information. The

international flow of information in the digital world has created an electronic market place

where firms are exploring and experimenting to benefit from new business opportunities (E-

business and e-commerce, n.d.).

24

The new platform for conducting business is changing the very way in which we live our

lives. Before this internet revolution, buying a book meant taking a trip to the bookstore,

shopping for clothes required a trip to the mall, and trading of financial instruments meant going

through brokers. Today, all of these things can be performed without having to take a step out of

your home. Large companies saw the opportunity and are finding ways to conduct traditional

transactions over the internet (E-business and e-commerce, n.d.).

3.1.1. How It Works

Online commercial transactions, specifically sales, need three things to be processed: an

online shopping cart software, a server that is secured, and payment processing software (E-

Commerce: Purchasing and Selling Online, n.d.). These are explained below:

25

1. Shopping Carts

The software tracks what the user has selected to buy from the website and guides the

user through the checkout process. The online shopping cart software, in turn, is made of three

parts:

• “Product Catalogue

• Shopping List

• Checkout System” (E-Commerce: Purchasing and Selling Online, n.d., para.8).

The first component, product catalogue, consists of all of the information that the

company needs to present to the customer about the product in addition to information needed to

complete the online sales transaction (E-Commerce: Purchasing and Selling Online, n.d.). This

information includes the price, image of the product, product identification number, product

versions or options. The software displays a list of all selected product in a cart to allow the

customer to track the items they have chosen. The software works best and functions properly

when the user allows cookies, which track user’s choices and pages they have viewed (E-

Commerce: Purchasing and Selling Online, n.d.). Finally, the system guides the user to the

checkout process where the user confirms his/her selections and proceeds to make the payment

(E-Commerce: Purchasing and Selling Online, n.d.).

2. Secure Server

The second component, the secure server, helps provide assurance and protection against

the loss, theft or unauthorized modification of user’s personal information (E-Commerce:

Purchasing and Selling Online, n.d.). “Secure Socket Layer (SSL)” is the most widely used

26

technology for the purpose of securing online sales transactions. SSL performs an encryption of

all data entered and transferred between the shop’s server and the user’s computer. This prevents

unauthorized third parties to steal or modify the data because they need to decode it. This

provides protection for sensitive data such as credit card numbers. The flowchart below shows

how a server can protect information exchanged between the buyer and the seller (E-Commerce:

Purchasing and Selling Online, n.d.).

Figure 2: Protecting Transaction Information Through a Secure Server (E-Commerce:

Purchasing and Selling Online, n.d.).

3. Payment Processing Options

There are three payment processing options: A. Third Party Payment Processing Software, B.

Internet Merchant Account, and C. Manual (Offline) Payment Processing (E-Commerce:

Purchasing and Selling Online, n.d.).

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3.1.2. Current Happenings in the E-business World

Companies in different industries are trying to take advantage of the boundary-less nature

of the web by moving their operations to the digital world to by-pass geographic limitations. The

web is a more efficient modem for their services and enables them to conduct business on a

global scale (E-business and e-commerce, n.d.).

People use the web to pay their bills, trade stocks, write and cash checks, take mortgages,

and manage their assets online; all of these transactions were previously carried through an

intermediary party. Money is gradually being replaced by digital cahs and smart cards, both are

more convenient technologies (E-business and e-commerce, n.d.). Automated software programs

and applications now take care of financial and logistical parts of the transactions between

individuals and/or companies. All that is needed to perform a transaction is internet connection, a

computerized device, and an e-payment capability (E-business and e-commerce, n.d.).

Conventional physical stores are being slowly replaced by electronic shopping websites

that provide a more convenient method of shopping and browsing for consumers. One of the

main advantages of electronic stores over physical stores is that they can hold an unlimited

amount of inventory and can offer countless choices of each product (E-business and e-

commerce, n.d.). In addition, online stores allow customers to browse multiple providers to find

the best deal for the product they are seeking. Furthermore, product reviews and comparisons

charts make it easier for consumers to find the best deal (E-business and e-commerce, n.d.).

Business to consumer transactions are not the only form of business that can be

performed over the internet. Business-to-business (B2B) can also take place in the electronic

28

world (E-business and e-commerce, n.d.). A business can, for example, order products from a

supplier and make the payment online, which makes the transaction faster and more convenient

and allows the company to track the progress of the shipment on a continuous basis.B2B

websites also facilitate cooperation between business by allowing them to outsource their

activities or use cloud computing to perform their operations (E-business and e-commerce, n.d.).

The change in the structure of the business is allowing some businesses to operate

without even having an office. All employees can access the company intranet and communicate

remotely via VoIP techniques and emails. These new technologies facilitate a work environment

known as the virtual office space, because all operations and processes previously held in the

office are now carried-on on the virtual world (E-business and e-commerce, n.d.).

In addition, business are nowadays capable of personalizing the platform and user

interface to provide a personalized experience for users that enhances convenience and

satisfaction. Users can tailor webpages to their liking and benefit from artificial intelligence-

based technologies which helps them save their preferences and filters out irrelevant or unwanted

content and results. This makes the whole process and experience more effective and saves time

and effort for the users (E-business and e-commerce, n.d.).

3.1.3. The Origin of E-commerce

E-commerce is not necessarily limited to performing commercial transactions through the

Internet alone, it also instead includes other mediums and forms of electronic communication. In

fact, the origins of e-commerce occurred not on the Internet, but via other means of electronic

29

communication (E-business and e-commerce, n.d.). Examples such as Electronic Data

Interchange (EDI) and Electronic Funds Transfer (EFT) were used well before e-commerce

started using the internet; these early forms where the foundations of the explosion of e-

commerce that we see and experience today (E-business and e-commerce, n.d.).

The difference between old and new technologies is that old technologies where able to

connect only one business to another one business, since the protocols used only allowed point-

to-point communication. In contrast, recent technologies used today enable other forms of

communication, such as one-to-many, many-to-one, and many-to-many (E-business and e-

commerce, n.d.). Therefore, they allow businesses to expand more easily all around the world.

The advanced technologies use various platforms and mediums which improve e-commerce

experiences (E-business and e-commerce, n.d.).

3.1.4. The Role of the Internet in E-commerce

The Internet’s origins were in the form of ARPANET, which was a network originally

sponsored by the US government in 1960s. As a result, the network and the hardware that

supports it grew greatly, as so did the number of users (E-business and e-commerce, n.d.). The

speed of internet increased along with the bandwidth, so its reach to consumers grew, which

facilitated the adoption of e-commerce. When the technology became accessible, easy to use, and

convenient, people’s use of e-commerce increased even more. As the development of e-

commerce and the research made in the field brought hardware and software innovations, the

accessibility of people made fast advancements (E-business and e-commerce, n.d.).

30

The most important role of the web is that it allows devices to be inter-connected and

able to search for, locate and view multiple forms of documents on any subject. In the past,

computers used to run on stand-alone programs (E-business and e-commerce, n.d.). On the other

hand, computers today are able to communicate millions of devices and databases (E-business

and e-commerce, n.d.). The Internet enables computing and communication technologies to be

used simultaneously (E-business and e-commerce, n.d.). It makes our work produced easier,

more efficient, and more accessible. Therefore, it enables small and large companies that use e-

commerce to get exposure and gain a large customer base all around the world (E-business and

e-commerce, n.d.).

3.1.5. E-business Models

The explosion of e-commerce and technologies related to it had led to the creation of

many unique, strong applications that can typically be grouped into various categories of e-

commerce (E-business and e-commerce, n.d.). These can be summarized as:

Business to Consumer (B2C) category refers to programs that provide a direct connection

from businesses to their customers. This is one of the most commonly used forms that we

access on a daily basis. An example would be retail websites that offer online shopping

alternatives by displaying the business’s products online where they can be directly

purchased by customers (E-business and e-commerce, n.d.). The dependence on this form

of e-commerce varies from one company to another. Some companies exist entirely

online and have no offline operations, so the online website is their only way to reach

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customers. Other companies have conventional offline stores, but use online stores to

diversify their means of reaching customers (E-business and e-commerce, n.d.).

Business to Business (B2B) are applications that are used by businesses to communicate

among each other, such as supply chain communications or partnerships communications

(E-business and e-commerce, n.d.). Nowadays, forming long-lasting relationships with

strong partners is critical for the business survival. B2B provide businesses with means to

strengthen their ties (E-business and e-commerce, n.d.). Examples are applications that

facilitate transactions for provision of goods or services between companies, and selling

goods or services on the Internet to other businesses (E-business and e-commerce, n.d.).

It also includes capabilities such as outsourcing logistics to third parties and using cloud

computing. Another application is legacy systems integration between companies. If

existing applications such as EDI or EFT are extended to help the B2B process, then the

existing legacy applications can be a big help in moving forward. On the other hand, if

two companies want to trade data, but have dramatically different legacy systems, legacy

integration can be a challenge to overcome. (E-business and e-commerce, n.d.).

Business to Business to Consumer (B2B2C) is one of the emerging models of e-

commerce. B2B2C is basically defined as using B2B to help support and rejuvenate

companies attempting B2C. This is due to the fact that B2B has been an overwhelming

financial success and B2C has not performed upto the expectations. This model is poised

to do well as it capitalizes the success of B2B and the potential demand of B2C. B2B

provides a way for B2C companies to reduce costs and improve their B2C services. An

example of B2B2C is developing products to help B2C companies increase profit by

integrating inventory from the manufacturer to the distributor. An application that links

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one online catalog to another would be considered a B2B2C application as it capitalizes

on both B2B and B2C (E-business and e-commerce, n.d.).

Consumer to Consumer (C2C) - C2C is an interesting relatively new piece of the e-

commerce world. C2C applications involve consumers conducting commerce directly

with other consumers. This obviously means that the company facilitating the transaction

must find some non-traditional revenge stream. This could be a small cut of the

transaction, a service fee, advertising, or some combination of these. E-bay is an

excellent example of a C2C application that is extremely popular with consumers (E-

business and e-commerce, n.d.).

Customer to Business to Consumer (C2B2C) involves consumers conducting transactions

with other consumers using a business as an intermediary. www.autotrader.com is the

best example for this sort of application. This site facilitates the transactions of selling

used cars between consumers, but also contains an inventory of used cars to sell to the

consumer (E-business and e-commerce, n.d.).

Apart from above categorized e-commerce applications, there are several specific models of

businesses operating on the Web. Here comes a brief of each model.

Auction Model - The Web offers many different kinds of auction sites.Auction sites act

as forums through which Internet users can log-on and assume the role of either bidder or

seller. As a seller, one can post an item to sell, the minimum price he requires to sell his

item and a deadline to close the auction. As a bidder, one can search the site for

availability of the item he is seeking, view the current bidding activity and place a bid.

Also there are sites designed to search existing auction sites in order to pinpoint the

lowest prices on an available item. Although auction sites usually require a commission

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on sales, these sites are only a forum for online buying and selling. They get the

commission from both parties once the deal is over (E-business and e-commerce, n.d.).

Portal Model - Portal sites give visitors the chance to find almost everything they are

looking for in one place. They often offer news, sports, and weather, as well as the ability

to search the Web. Portals are subdivided into two kinds: horizontal portals and vertical

portals. Horizontal portals aggregate information on a broad range of topics. Vertical

portals are more specific, offering a great deal of information pertaining to a single area

of interest. Online shopping is a popular addition to the major portals. Portals linking

consumers to online merchants, online shopping malls and auction sites provide several

advantages (E-business and e-commerce, n.d.).

Dynamic Pricing Models - The Web has changed the way business is done and the way

products are priced. There are companies which enable customers to name their prices for

travel, homes, automobiles and consumer goods. Buying in bulk has always driven prices

down and there are now Web sites that allow one to lower the price by joining with other

buyers to purchase products in large quantities to get price reduction. There are a number

of variety of models here. They are Name-Your-Price Model, Comparison pricing model,

Demand-sensitive pricing model, and Bartering model. E-business allows companies to

follow a variety of ways to keep prices down on the Internet, such as rebates and offering

free products and services (E-business and e-commerce, n.d.).

Online Trading and Lending Models - Another fast-growing area of e-commerce is online

securities trading. Many brokerage houses have established a presence on the Web.

Trading sites allow one to research securities, buy, and sell and manage all of his

34

investments from his desktop. Online trading often costs less than conventional brokerage

(E-business and e-commerce, n.d.).

3.1.6. Advantages and Disadvantages of E-commerce

As discussed previously, there are many advantages that can be achieved for consumers

by using e-commerce. These include:

- Convenient use, since e-commerce transactions can be carried any time of the day and week,

customers can shop whenever they think is convenient for them and from the comfort of their

homes (Investopedia, n.d.).

- Selection: customers are able to view and compare offers and products from different

companies at once; and companies are able to offer a wider variety of products, which allows

customers to find products that better match their preferences. In addition, they can more easily

see product reviews from real consumers to make a better informed decision (Investopedia, n.d.).

However, e-commerce is not free of issue. There are disadvantages to e-commerce. These

include the following:

- Less customer service: If a customer, for example, wants to purchase a computer online, he/she

can’t receive support from employees to know which one better match their needs (Investopedia,

n.d.). However, many companies are now providing online chat services where customers can

reach customer support employees while shopping online.

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- Delivery time: customers have to wait for their package to be delivered instead of being able to

use what they purchased immediately. However, this problem doesn’t exist in the case of

software products. (Investopedia, n.d.).

- No ability to touch and see a product: This is perhaps one of the more pervasive downsides of

e-commerce, since online images don’t substitute the ability to be able to try the product.

Products in reality can be disappointing and don’t match customers’ expectations. This is

especially true in the case of clothes shopping where people prefer to try the size and model in

real life, or furniture shopping where people want to try the comfort of the product (Investopedia,

n.d.).

- Security and privacy issue: customers might be afraid to conduct transactions online because of

fear of theft of sensitive information, such as private personal information and credit card

information. Threats of identity theft, fraudulent credit card use, viruses, and spam are all issues

that could arise from e-commerce. Customers might also fall victim to phishing schemes where

they tricked into reveling private information to illegitimate parties that use seemingly official

sources (E-Commerce: Purchasing and Selling Online, n.d.).

3.2. E-Commerce in Turkey

Last year, the volume of e-commerce transactions in Turkey has hit 18.9 billion Turkish

liras (6.34 billion euros), after an increase of 35 percent from previous year’s levels in 2014 (E-

commerce news, 2015). Today, e-commerce in Turkey forms 1.6 percent of all retail transactions

in the country, according to TUBISAD, the Turkish association of informatics industry (E-

36

commerce news, 2015). The chairman of the association, Kemal Ciliz, said that although

country’s overall economy is passing through a period of a relatively slow growth, the

ecommerce side of the economy showed a robust increase in the proportion of retail spending.

However, Turkish e-commerce still has a potential to grow even more as it still hasn’t reached its

desired optimal level, according to Kemel Ciliz. (E-commerce news, 2015).

The reason behind this is that the sector still needs a stronger legal background and more

organized regulation in order to grow more, said Ciliz (E-commerce news, 2015). The need for

such regulations is increasing, especially that e-commerce only composes 1.6 percent of retail

industry in Turkey, compared to 6.5 percent in other developed countries (E-commerce news,

2015).

In contrast, payments on mobile phones have been increasing in the recent years, as

mentioned by the chairman of the Turkish Interbank Card Center, Soner Canko. “One of every

two transactions that take place on a website, is conducted via a mobile device”, he said (E-

commerce news, 2015, para. 4). TUBISAD noted that Turkish people spending online for

vacations and airlines tickets was 2.28 billion euros, while they spending on retail websites was

lower at 2.18 billion euros. Spending on betting sites was about 705 million euros, while the

revenue for online marketplaces reached 906 million euros (E-commerce news, 2015).

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Figure 3: Popular products in Turkey (E-commerce news, 2015).

According to a member of TUBISAD’s board of directors, Burak Ertas, Turkish people

are used to and comfortable with using credit card for paying in conventional offline stores, but

that they still need to take their time to get accustomed to using those credit cards for e-payments

while shopping online (E-commerce news, 2015).

3.2.1. Online Clothing Retail in Turkey

Clothes online shopping is slowly becoming more and more popular in Turkey. Below are few

examples of online shopping websites:

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Miniko: this shop has a website available in Turkish and English, but only ships

domestically. The shop has a vintage boutique in the historical Pera neighborhood in

Beyoglu that offers exclusive designer clothes, designer bags, and unique children

clothing, but it made a large proportion of their products available on their online

shopping website. The website allows the customer to browse products online in a way

very similar to their physical store (Best Online Fashion Stores in Turkey, 2015).

Au Vintage: (Turkish, free domestic shipping, surcharge for international DHL): The

shop has a unique selection of local and international vintage gem designer clothing and

footwear from the middle that can date back to the 1950s. Customers can use the website

to filter products according to the decade they come from. Customers can also sell their

vintage pieces of clothing on the website. The website is available in Turkish only. The

shop offers free shipping domestically, but they charge a fee for international shipping,

which is done via DHL (Best Online Fashion Stores in Turkey, 2015).

Shopi Go: an online shop which offers rare, international brands such as Opening

Ceremony and Carven, which can’t be found anywhere else in the Turkish market.

Product lines are available for men and women. Interestingly, the shop started online and

recently opened its first offline store, but their online shops still have a much wider

variety of products. The website is available in Turkish and English and makes shipping

worldwide. They have free deliveries in Turkey, including returns, and express delivery

in Istanbul (Best Online Fashion Stores in Turkey, 2015).

Beymen: The website offers customers a wide selection of international designer brands

in addition to their own brands, Academia, Beymen Club and Beymen Collection. Their

39

website is available in Turkish only and they only make domestic shipping, including free

returns (Best Online Fashion Stores in Turkey, 2015).

Lidyana: the website has a very wide selection of fashionable clothing, cosmetics,

gadgets and accessories that fits every budget. They offer product lines for men and

women. The website is available in Turkish and makes international shipping (Best

Online Fashion Stores in Turkey, 2015).

Tru. Project: the shop has a physical store in Bebek in addition to their online shopping

website. They offer a wide range of basic clothing that are arranged and categorized so

that customers can quickly find what they are looking for. The website is available in

Turkish only and makes only domestic shipping (Best Online Fashion Stores in Turkey,

2015).

3.3. H&M ONLINE STORES

To match the rapid growth of the online shopping sector; specifically, shopping via smart phones

and tablets, H&M has been increasingly investing in distance selling. H&M offers online

shopping 21 markets, including the US and the majority of Europe. They describe their online

stores as easily navigable, fully smart phone adapted and very famous with customers. H&M

aims to continue providing online shopping in more markets. H&M’s other brands, COS,

Weekday, Monki and Cheap Monday provide online shopping in 19 markets, while their

relatively newer & Other Stories is still only available online in 13 markets (H&M “Global

Expansion,” 2015).

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H&M first introduced online shopping in 1998. The service was only available in

Sweden, its country of origin (H&M, 2015). The year 2006 marked an important milestone for

H&M’s online move, when online shopping and catalogue shopping started in the Netherlands,

which was the first time for H&M outside Scandinavia (H&M, 2015). In 2007, the expansion of

online sales continued when Germany and Austria branches also started offering the service

(H&M, 2015). The online shopping system was launched in the UK in 2010. The year 2011 was

also an important milestone, when other brands under the H&M umbrella started offering online

shopping, such as COS and Monki offering their online retail in 18 markets. The most recent

online shopping move for H&M was in 2013, when it introduced the service in the US. In

addition, more H&M brands, such as Weekday and Cheap Monday, launched online shopping in

several markets as well (H&M, 2015).

To better understand how H&M’s online shopping system works, we will follow the

example of the UK market.

The process is easy to follow. The customer needs to be 18 years older and above and

have a valid UK address for delivery and billing. Customers can browse the website and add

items to their shopping bags, where they can be saved for seven days. However, these items are

not considered reserved and can run out of stock even if the customer keeps the item in their

shopping bag. After the customer is done shopping, he/she can click on “Shopping bag” to place

their order and display the price and availability of the chosen items. The order can also be edited

at this point. Once the customer is sure about his/her selections, he/she can proceed to the

checkout process. Customers have the option to save their credit card information in order to

save time if they choose to shop online again. After the order is placed, the customer receives a

41

confirmation via email. Another email will be sent for tracking the shipping status of the order.

(H&M “Online Shopping,”, n.d.).

There isn’t a significant difference in price between online and offline shopping.

However, H&M charges a £3.99 fee for standard shipping and a £5.99 for next day deliveries.

Shipping is free for orders above £50. The terms and conditions for returns and refunds are the

same as offline shopping as well (H&M “Online Shopping,”, n.d.).

To keep their prices so affordable, H&M buys the same garments in large quantities

directly from their supplier and try to minimize the number of intermediaries, then sell these

items in their stores (H&M “Online Shopping,”, n.d.). H&M has a very long experience in the

textile industry and a wide knowledge about the best places to buy each time of goods for each

market. In addition, they have invested large amounts to develop a fast and cost-efficient

delivery and distribution system. H&M promotes the concept of cost awareness at every level of

their value chain, allowing them to offer their products at very affordable and attractive prices

(H&M “Online Shopping,”, n.d.).

Another interesting feature that H&M offers is Scan & Buy. Scan and Buy makes the

shopping experience easier and more efficient (H&M “Online Shopping,”, n.d.). If a customer

finds an item in a store but can’t find their size or the color they want, they can use Scan & Buy

to check immediately whether it’s available online and quickly make the purchase online (H&M

“Online Shopping,”, n.d.).

Scan & Buy feature is very easy to use. Customers need to simply check the price tag on

their selected item, open the H&M app on their smart phone and click the scan icon, then scan

the price tag by holding the phone above it. The price tag should appear on the screen. Next, the

42

outcome of the search is displayed on the phone. In case the item is available online, the

customer can be directed to the product detail page where he/she can choose the size and color

and complete the purchase as usual. If the item is not available, the customer will also be notified

on the screen (H&M “Online Shopping,”, n.d.).

The Scan & Buy function can work for an unlimited number of items. After scanning the

first price tag, the customer will have three options: to continue shopping, go back to scanning,

or proceed to checkout.

3.4. H&M ONLINE PRESENCE IN TURKEY: ASSUMPTIONS

Five years after it has entered the Turkish market, H&M still hasn’t offered online shopping in

Turkey. H&M doesn’t have local social media accounts either. Attempts to understand the

reasons behind the online inactivity by contacting local H&M offices were unanswered.

Therefore, the following section will explore various assumptions as to why H&M has remained

offline in Turkey.

3.4.1. Need to Focus on Physical Stores

H&M’s presence in Turkey is relatively recent. It is possible that H&M wants to have a

better understanding of the market, customer behavior, preferences and experiences. In addition,

43

H&M may want its brand to occupy a strong location among local and foreign competition in the

Turkish market before they step into online shopping.

Entering a new market is a risky move for any company, no matter how large that

company is. The company needs time until they fully understand the markets opportunities and

trends, its composition, customers, threats, competition and to be able to accurately forecast of

big moves such as moving to online stores.

In every other location where H&M has both online and offline stores, H&M took its

time before it made its move into the online world. For instance, H&M opened its first physical

store in the US in 2004, but didn’t start online shipping until nine years later in 2013. Similarly,

H&M stayed for a long time offering online shopping in Scandinavia only before started offering

online shopping in the Netherlands in 2006. It can be noted from the discussion earlier that H&M

expansion strategy is much more relaxed with physical stores compared to online stores, given

the many threats that online retailing can present.

Conclusion: it’s fairly possible that the move will come with time, H&M may be using

the conventional physical stores to understand the market and be fully prepared for a move into

online shopping.

3.4.2. Risk of Losing Traffic in Physical Stores

H&M currently has over thirty stores in different Turkish cities. All of these stores need a

certain level of traffic and demand in order to break-even. Launching online stores may cause

44

demand simply to shift from offline to online, meaning that customers who used to shop and

create revenue for the physical stores switch to buying online, hence, no additional demand is

created. If this happens, physical stores may find it difficult to recover their costs and remain in

operations. This is common in the case where customers browse items in offline shops but

eventually complete the purchase transaction online (Smart Focus, 2014).

It is difficult to assess whether H&M will be able to gain market share with the launch of

online shopping in Turkey. Generally, customers, especially those of younger generation who are

willing to embrace technology, do get attracted by online shopping because of its ease, speed and

convenience. In addition, unlike physical stores which have a limited capacity of stock and the

number of people that they can host, online stores can virtually accept an unlimited number of

customers, increasing the potential customer base for the shop. This was the case in the other

countries where H&M has both online and offline stores, and for other brands who have online

and offline stores in Turkey, such as Mango (Smart Focus, 2014). The trend of expanding online

operations of H&M suggests the success of their previous experiences.

By observing the trend of expansion of H&M in Turkey, we can notice that it was able to

expand to thirty plus stores in less than five years, which suggests that the brand was well-

received and that demand is growing. Therefore it is somewhat unlikely that the fear of losing

offline traffic is a big factor in H&M’s decision to delay the launch of online stores.

Conclusion: Although a possible suggestion, online stores have the potential of attracting

new customers and not simply steal existing customers from physical stores. It is unlikely that

the effect of online stores will be negative on offline stores.

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3.4.3. Price Considerations

Price is one of the most important factors in any company’s marketing strategy and value

proposition. H&M always ensures that its online products are affordable and have similar prices

to the offline products through reducing levels in the supply chain and using efficient means of

distribution. In general, online products have lower prices and higher profit margins than offline

products because of various savings, such as store rental costs and store staff costs. However, the

most important extra cost is the delivery cost, which is, in H&M’s case, passed on to customers

by charging a separate delivery fee for every purchase. The delivery fee is usually accepted by

the customer and it doesn’t cause him/her to cancel the purchase.

Conclusion: Price of online products is usually even less than offline products due to

various cost savings. Therefore, it is unlikely that price considerations are preventing H&M from

launching online shopping the Turkey.

3.4.4. Inventory and Delivery

For online shopping to succeed and appeal to customers, companies should avoid stock

outs and must ensure fast and reliable delivery. Adequate stocking requires accurate forecasting

of demand, which items and sizes are more popular, and how often do they need to order each.

Companies may use their offline sales data as an indicator or means of forecasting online sales.

However, this should be done with care because the profile of customers for online and offline

stores may not be the same (Smart Focus, 2014). For example, online customers tend to be more

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of the younger generation compared to offline customers. How the company will arrange the

orders from suppliers and store them would be another issue: where should their central

warehouse be located in order to minimize storage costs and delivery costs and times, what level

of inventory will they keep in the warehouse, and how many warehouses should they have

(Smart Focus, 2014).

Delivery is another issue. To have a reliable delivery, the country must have a reliable

roads infrastructure (Smart Focus, 2014). In our case, Turkey is well-advanced, so infrastructure

is not an obstacle. Furthermore, one more consideration would be who handles the delivery:

should H&M perform delivery themselves or outsource the process to specialized logistics

providers. Most companies in Turkey that offer online shopping currently rely on famous and

reliable delivery companies to provide a satisfactory delivery to customers (Smart Focus, 2014).

Not all of H&M’s online experiences have been well received by customers. US

customers, for instance, have provided several reviews complaining about the bad delivery or the

buggy website (Smart Focus, 2014). Therefore, there is always room for improvement in this

area.

Conclusion: Delivery and inventory consideration are possible explanations to H&M’s

delay in launching online shopping in Turkey. The company may be taking its time to study the

different possible alternatives in order to be able to match customer’s expectations and avoid the

damage that would happen to the reputation if they have an unreliable delivery system.

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3.4.5. Security and Privacy Issues

Consumer are slowly getting accustomed to providing personal data online, but concerns

about data privacy issues still exist worldwide (Smart Focus, 2014).

For example, privacy concern is an issue for 62 percent of UK consumers, with the

proportion being higher for women than men. Similarly, in the US, around 70 percent of

consumers are concerned about sharing their personal data online, especially after recent

breaches of personal and sensitive financial information. The main concern is how and with

whom do they share their information and how will the information be stores. The issue with

privacy is subject to effects form the generation gap, as over 50 percent of Millennials have no

issues with exchanging their data to get personalized deals and experiences (Smart Focus, 2014).

Turks are not different from UK and US consumers. Although Turks have been

increasingly using online shopping and spending money online as discussed earlier, most of

online spending goes to transactions unrelated to online clothes shopping, such as travel. In

addition, Turks are still not very confident in using their credit cards for online purchases for

security concerns (E-commerce news, 2015).

Nonetheless, as explained earlier, various online clothes stores exist in Turkey and are

able to carry out their operations normally. Therefore, overcoming trust and security issues

seems to be possible as other companies are doing it.

In addition, there are multiple considerations and payment options that could be chosen

and can provide additional assurance for online shoppers, such as: Third-Party Payment

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Processing (such as PayPal), Internet Merchant Accounts and Manual Credit Card Processing (E-

Commerce: Purchasing and Selling Online, n.d.).

Conclusion: Security issues over monetary transactions and other private and personal

data is a valid reason that might explain H&M’s delay to launch online shopping. However, a

brand with the size and experience of H&M should be able to resolve any concern and build

confidence in the customers.

3.4.6. Culture and Customer Preferences

Even though Turkish consumers spend most of their money in physical stores, 60% of

customers are prepared to increase their shopping activities online. However, this differs with

age. When customers are broken down into categories based on their age (defined as Millennials

(16-34 year of age), Generation X (35-54 years of age), and Baby Boomers (55+), there’s an

obvious generation gap (Smart Focus, 2014).

About 50 percent of Millennials spend time online shopping more than in stores – while

most (73%) of Baby Boomers Shop more in physical stores (Smart Focus, 2014).

This shows that retailers should adapt to the emergence of e-commerce without losing

their customers from the older age group. This can be done by offering shopping options in

traditional stores to appeal to Baby Boomers while offering online shopping that appeals to

Millennials (Smart Focus, 2014).

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Additionally, younger customers have a better understanding and comfort with new

technology than older shoppers. Therefore, retailers need to increase awareness about the use of

the new technology to older customers in order to appeal more closely to them (Smart Focus,

2014).

This could apply to the Turkish market as well. H&M might me afraid that Turkish

customers don’t understand the technology behind online shopping, and therefore don’t trust

using their credit cards to pay for things over the internet. In addition, cultural preferences may

make consumers want to physically observe the products they want to buy and not get conviced

by just viewing pictures online. The assessment is very important to know whether the market is

ready for online shops. As mentioned earlier in this paper, although e-commerce does exist in

Turkey, it still needs more laws and regulations to make more sound and secure.

However, since online clothes retailing does exist in Turkey, it’s likely that H&M can

succeed if they introduce online shops. However, they need to be transparent about their process

and provide assurance to customers about methods of online payments.

Conclusion: customers’ awareness about technology and their understanding and trust of

the delivery and payment process does influence online shops’ potential to succeed. However,

it’s more likely that the Turkish market will have enough technical awareness to support online

shopping in the near future.

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4. CONCLUSIONS AND RECOMMENDATIONS

H&M is one of the largest and most successful fashion retailers in the world. Their

unique fast fashion strategy and expansion criteria have allowed them to build a large customer

base in over 60 countries. They have initiatives and plans to expand both online and offline,

which helped them offer online shopping in around 21 markets. H&M in Turkey has

significantly grown since its entry to the market in 2010, with over 30 stores available now in

many Turkish cities.

E-commerce has significantly grown in the past years. It has not only changed

consumers’ perception of their options and purchasing power but also helped improve the

economy and efficiency of doing business. More and more companies are moving their business

online. E-commerce technology has helped the consumer reach businesses and companies all

over the world. H&M realizes the importance of e-commerce and tries to adapt to it as much as

possible.

However, although e-commerce has been growing in Turkey, and customers are

becoming increasingly aware and comfortable with it, H&M still hasn’t offered online shopping

in Turkey. The Turkish clothes retailing sector is flourishing, especially with the growth of

available retail space. However, this means more fierce competition for all players in the market.

Therefore, in order for H&M to maintain their success in the Turkish market, they have to stay

up to date and be customer oriented by listening to their customers and understanding what they

want. In addition to offering high quality products at attractive prices, H&M have few points that

they can improve.

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H&M can start applying Loyalty Programs. Around 64% of H&M customers have little

to no loyalty to the brand, which means they can switch to any other retailer any time they want.

H&M can counter this by introducing loyalty programs, which can be:

- Gift Cards: customers buying above a certain amount can get a loyalty card and use it to

accumulate reward points. For example, they can get a 50 TL gift card for every 300 TL spent.

Such kind of loyalty program can assist H&M build a strong place in consumer’s minds. In

addition, the card can act as a reminder for customers to shop at H&M whenever they see it in

their wallets.

- Email club: H&M can give customers the option to register their emails to receive weekly

updates with the latest fashion news and discount codes.

Furthermore, H&M needs to improve their Social Media presence. Currently, they only

have a global Facebook page which rarely publishes any posts. In addition, their replies to

consumers’ posts are often late and unsatisfying. H&M can open a local Turkish Facebook page

where they post in Turkish locally available offers and local news. This way, they can appeal

more closely to customers. The same issue applies to Instagram.

In addition, although their Twitter page is local, it lacks sufficient interaction. H&M

needs to connect more closely to their customers and understand their wants and concerns, and

such a channel can prove very effective, as social media today forms s large part of consumers’

life, especially the young generation.

As for their website, H&M should make the interface more user-friendly and less

cluttered. I highly recommend bringing back the virtual dressing room on the website which was

agreat tool to make a combination online and a big motivation creator for purchasing.

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Their mobile app can be improved as well. Scan & Buy feature can be extended not only

to locating products online, but also to check its availability of sizes and colors in other

conventional stores as well, so that the feature can be used even in countries where online

shopping is not yet available. Besides, the store locater service shouldn’t be only in the mobile

app, but also in store itself.

Additionally, H&M can work to expand the variety of products for men as well as the

quality of the shoes they offer.

Finally, if H&M decides to start offering online shopping in Turkey, they should most

importantly tackle security and privacy concerns that Turkish customers have. This can be done

by:

Reviewing the security features and services offered in the website and the Internet

Service Provider, and design the website to offer greatest flexibility and security.

Paying attention to security-related alerts and installing security patches and firewalls as

needed to protect customers’ data

Regularly updating their software and scanning for spyware and viruses.

Regularly testing the system to know how easily in can be breached by hackers

Avoiding storing customer credit card information in their systems, and making this

publicly available to customers to ensure them that their information will not be stolen

from the website.

Developing a privacy policy that outlines the information to be collected, how it will be

used, and the security procedures used to protect it and make this policy available to

customers so that they can have confidence in the system.

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Educating customers about the use of credit cards online

Making the checkout process as easy as possible and providing clear instructions so that

customers don’t feel lost in the process or feel intimidated by it.

Encrypt private customer information that is stored in the web database and informing

customers that their data is encrypted to provide assurance

In summary, H&M has gone a long way since it was found. It has occupied a beloved

location in consumers’ minds all over the world. H&M’s experience in Turkey has been positive

so far. However, if they choose to start offering online shopping in Turkey, they have to tackle

the unique challenges and cultural differences that exist in the Turkish market. They need to

resolve delivery issues and cultural concerns relating to online transactions if they want to

succeed in entering the online world in Turkey.

.

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