H&M Opening in Malaysia

According to Koh in Malaysia Insiders, she states that H&M, a Swedish fast fashion giant, has created a big impact in the fashion market since its opening on the 22nd of September. This is further discussed in her article, ‘Is H&M starting a revolution in Malaysia?’, on 1st of October 2012.

In Koh’s article, she points out that with unbelievably affordable prices of H&M, it is no surprise that even on a workday afternoon after more than a week of its opening, the place was packed to the seams. To prove the statement, we can apply an economic theory to the situation. According to the Law of demand, when other things remain the same, quantity demanded of good increases when price of good decreases, and vice versa. Therefore, when the price of good is low, quantity demanded of good will be great. This is the same when the price of H&M is small, quantity demanded of it will be large, as shown in Diagram 1.

Diagram 1 shows the graph of demand curve of H&M; it illustrates the concept of the Law of demand. Buyers are more willing to buy goods at low price. Hence, there is a negative relationship between price and quantity demanded.

Next, Koh states that cheap price in H&M will be a great challenge for the other fast fashion retailers in Malaysia, as there will be a new competition in the market now. This can be tested using the economic theory, factors that influence a change in demand. When there is an influence on buying plans other than the price of the good changes, there will be a change in demand for that particular good. Price of related goods is one of the six main factors that will affect a change in demand. In the article, Koh states that fast fashion retailers like ZARA, Mango, Cats Whiskers and Uniqlo are all related goods of H&M. They are a substitute in the eyes of consumers. A substitute is a good that can be used in place of another good; when the price of a substitute of a good is high, the demand for that specific good is high, and vice versa; there is a positive relationship in between the two variables. Similarly, since the price of H&M is cheap, the quantity demand in other retailers like ZARA, Mango, Cats Whiskers and Uniqlo will be small.  

Diagram 2 illustrates the concept of change in demand of a good. D1 shows the initial demand curve of other retailers, when other factors remain the same; D2 shows the change in demand of other retailers when its substitute, H&M is introduced. The demand curve shifts leftwards to show a decrease in quantity demand.

As we move on to the supply curve, we will expect a decrease in quantity supply of H&M goods. A change in supply is affected by the prices of related goods produced. When the price of a substitute in production falls, supply of good increases, and vice versa. Therefore, as the price of H&M goods is lower than its substitutes such as ZARA, Mango, Cats Whiskers and Uniqlo, the quantity supply of its goods will be small. This is because suppliers are more willing to allocate the same factors of production at a good with a higher price. This can be explained by the Law of Supply. According to the Law of supply, when other things remaining the same, the higher the price of a good, the greater the quantity supplied, and vice versa.

Diagram 3 shows the supply curve of H&M goods; it illustrates the concept Law of supply where sellers are more willing to sell at a higher price. There is a positive relationship between price and quantity supplied.

Furthermore, another effect of H&M goods in Malaysia will be the forming of new market equilibrium of other retailers’ goods. As the price of H&M goods lowers the quantity demand of ZARA, Mango, Cats Whiskers and Uniqlo, new market equilibrium will be achieved to meet quantity demanded and quantity supplied at a certain price. 

Diagram 4 shows the new market equilibrium of ZARA, Mango, Cats Whiskers and Uniqlo; where supply curve, S intersects with demand curve, D2. Market equilibrium happens when quantity demanded is equal to quantity supplied, at a given price. From the diagram shown, at the new market equilibrium, price of good is decreased and quantity demanded is lowered when there is a decrease in the change of demand. Buyers are more willing to buy goods of H&M.

In conclusion, we can say that goods at fast fashion retails have an elastic demand. This can be explained when there is a slight change in price of good, a significant change in quantity demanded will be seen. Elasticity of demand is a measure of people’s responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. Generally, inferior goods are inelastic whereas normal goods are elastic. Goods at fast fashion retailers are a type of normal goods; they have an elastic demand. Finally, fast fashion retailers should make adjustments in price carefully so the change in demand will not be too massive. 

Source from: http://www.themalaysianinsider.com/print/business/is-hm-starting-a-revolution-in-malaysia/