Strategic development of UK retailer Marks and Spencer

Published Date: 23 Mar 2015

Marks & Spencer are one of the UK's largest retailers, with over 21 million people visiting M & S stores every week. M & S offer stylish, high quality, great value clothing and home products and also excellent quality foods, responsibly sourced from around 2,000 suppliers worldwide. M & S employ more than 75,000 people in the UK and outside the UK and have over 700 UK stores, plus and growing international business.

M & S are the ideal provider of women wear and lingerie in the UK, and are also rapidly raising market share in menswear, kids wear and home, due in part to M&S growing online business. Overall, M & S clothing and home ware sales account for 49% of our business. The other 51% of M & S business is in food, where M & S retail everything from fresh produce and groceries, to partly-prepared meals and ready meals.

M & S also recognized for their green identification as a result of their five-year eco plan, Plan A, which will see M & S, with other things, become carbon neutral and also sending no waste to landfill by 2012.

Company's Brief History

With more than 120 years of heritage, Marks & Spencer is one of the well recognized British retailers. The M & S has more than 500 stores within the UK and has more than 75,000 employers across the UK. M & S also operates in the International Market, where it has a developing business in some places as far as Hong Kong.

In recent years, the UK's retailing industry has been characterised by forceful competition. Consumers are more conscious of where and how they feel like to shop. They also know what kind of shopping understanding they require. This has made it much more complicated for retailers to carry on.

Corporate Strategic Development

History

The original firm was a chain of "PENNY BAZAARS", founded by Thomas Spencer and Michael Marks. It became a household name thanks to the efforts of Simon Marks and his friend Israel Seiff.

M & S has branches in approximately 28 countries all over the world. They mostly exist in British Societies and Eastern Europe but this effort to get bigger into Western Europe and in the United States go failed because of their high prices and also of their basic British Vision of the company. M & S also was particularly unsuccessful in France and even they were forced to close their stores in France because of the legislation which the French Government set in place to protect their labour force.

In 1960's Marks and Spencer opened first store in Central Asia in Kabul, Afghanistan. This store was closed after some time because atmosphere of the city turned usual.

In the middle of 1990's M&S first ever TV commercial of clothing were broadcast.

In 20th Century M&S became well reputed in market, when they make a policy of selling only British made goods, mostly focusing on quality than the price to encourage tradition.

Introduction of their new clothing range in 2001 named "Per Una" designed by George Davies accompanied by a reshaping of their underlying business model their profits increased very sharply and M&S improved a lot of its market share. Also change in their traditional policies including accepting credit card transactions and opening M&S stores on Sunday's put stars on their reputation in market.

Group Structure & Financial Performance

Grassroots organisations seem to work well with in a flat structure organisation as freely as likely of Board of Directors and Management. Flat Structure does not mean the elimination of individual responsibilities; even flatness means the end of people with dominant authority over other individual's job. National people groups must avoid the ordinary mistake of including small numbers of people heavily. They should try hard to engage large numbers of individuals lightly. Flat organisations, which highlight parallel connections, seem to be the best thing for linking large numbers of individuals lightly.

Regular Based Meetings

A circular

Dividing everyday Jobs and responsibilities

Staff Training

Staff Members Gathering

A forecast Processing

Working interaction with power players and resource companies. Power players are people with the capability or skills to make job done: politicians, owners of key businesses, media, government departments, heads of organization, landlords.

The group's performance of the team members for they year 2009 ended at March 31 was very unsatisfactory. The return on equity percentage and the income per share were nil as the organisation revenue was only £1.3m in this year. The dividend cover was also nil because of the same cause. The company paid all its revenue to the shareholders because the dividend cover was very low last year. Because of this, company had to cut-down the dividend approximately from 12.4p to 8.0p. Company planned for the same dividend even though the company had about zero profit. The set reports outcome of three operational divisions:

UK Retail Distribution

International Retail Market

Financial Resource Division

UK Retail Distribution

The UK Retail distribution, the biggest of the operating distributions, is itself sub-division into seven business units, each indicating a defined quarter of merchandise:

Women's Wear,

Men's Wear,

Children's Wear

Lingerie,

Beauty,

Home,

Foods.

The First Six business units such as Women's, Men's and Children's Wear, Lingerie, Beauty and Home are known as "General" and footage is in between these six units depending on demand and seasonal factors. The liberty is located due to the biggest single business unit that is Food and is relatively unbendable.

Final Financial report in the UK retail defines a drop down in Sales and Operating Profit.

Sales And Operating Profit In The End Of Financial Years

Sales Operating profit____ ­­

2001

2000

2001

2000

£m

£m

£m

£m

Group Total

8085.7

8185.5

468.0

542.0

UK Retail

6300.9

6582.7

364.8

445.1

International Continental Europe

288.0

299.3

(55.0)

(40.5)

European Franchise Businesses

264.3

264.3

25.6

20.7

Brooks Brothers

445.1

395.5

22.2

8.9

Kings Super Markets

317.1

273.7

21.9

12.1

East

119.1

105.2

7.3

(4.2)

International Retail Market

The International Market of retail Business mainly consists of three broad geographic areas:

Europe excluding UK

North America

East

The International Retail Market results consist of those M & S franchise businesses which operated 125 franchise stores in 26 countries. The European International Retail Market can be divided into the following:

Continental Europe

Republic of Ireland

European Franchise Businesses

The group running two businesses in North America that are:

Brooks Brothers

Kings Super Markets

In March 2001 Kings Super Markets and Brook Brothers operate in 27 and 221 stores respectively. In the end, in Far East the group deals with in 10 stores in Hong Kong.

In this year, approximately every company did good business in this division comparatively to last year, with the exemption of Europe's M & S stores which increased their losses.

Financial Resources Division

One of the important Commitments of M & S in the integrated planning cycle is The Financial Resources Commitment. This commitment describes a number of Financial Resources Division Initiatives:

Integrated Planning Cycle

Commitment

Improving Management of Resources & Implementing

Improving our Internal Control Environment

Enhance Transparency

M&S is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

After fostering significant growth in recent years, mid-2008 saw share prices plunge to well under half their value of twelve months before, as M&S struggled to cope with more conservative shoppers in the credit crunch.

Until 1999 M&S's financial year ended on 31 March. Since then, the company has changed to reporting for 52 or 53 week periods, ending on variable dates.

Year ended

Turnover (£ M)

Profit before tax (£ M)

Net profit (£ M)

Basic esp. (p)

28 March 2009

9,062.1

706.2

506.8

32.3

29 March 2008

9,022.0

1,129.1

821.0

49.2

31 March 2007

8,588.1

936.7

659.9

39.1

1 April 2006

7,797.7

745.7

520.6

36.4

2 April 2005

7,490.5

505.1

355.0

29.1

3 April 2004

8,301.5

781.6

452.3

24.2

29 March 2003

8,019.1

677.5

480.5

20.7

30 March 2002

8,135.4

335.9

153.0

5.4

31 March 2001

8,075.7

145.5

2.8

0.0

1 April 2000

8,195.5

417.5

258.7

9.0

31 March 1999

8,224.0

546.1

372.1

13.0

31 March 1998

8,243.3

1,155.0

815.9

28.6

31 March 1997

7,841.9

1,129.1

746.6

26.7

31 March 1996

7,233.7

965.8

652.6

455.8

Strategy Analysis

Collectively, the Board Team Members are responsible for the bright and excellence future of the company. In the course of the Chief Executive, the Board delegate to management on the whole performance of the company through building long-term management potential, setting clear goals of the company and ensuring that the business is supervised in conformity according to business values.

Marks & Spencer Board Structure:

COMPANY'S CHAIRMAN

Chief Executive

Executive Director

On-Executive Director

On-Executive Director

On-Executive Director

On-Executive Director

Competitive Strategy Environment

M & S operates in a competitive atmosphere. Its competitors are more customers based and more in tune with the needs and the requirements of the customers. Such as on cloths sector, NEXT & Debenhams have exploited the requirement for young people and in food sector Tesco and Sainsbury have expands its ranges of ready cooked meals.

In UK there are no exit or entry barriers but the market is mature and therefore there is no bounces for a new company or a company from abroadto come and compete in these markets. In contrast M & S experienced Exit barriers when under the France law they were not permitted to close their France Stores and make their employees redundant with just a week's notice. (Ralph, 1996; anon, 2004)

New Group Strategy and Structure

Subsequently a wide-ranging and comprehensive strategic review of its business, the Board of M & S practiced significant changes to the Group strategy and structure in March, 2001. The main basics of this new plan are:

Focus on UK Retail Market

M & S will sell only own brand products so it can guarantee customers the excellent quality, great value and good services. Main theme of the plan is the delivery of considerable improvements in product availability, product value and product appeal thereby regaining the relationships with core customers of M & S.

Clothing Recovery Plan

M & S has plans to rebuild the confidence of its customers in the quality

And fit of its clothing. It will sharpen pricing by rebalancing the price structure, expansion in the range of entry-price products and also well communicating this to customers.

Expansion Food, Home and Beauty Products

M&S Foods continues to execute well and has rebuild customers' trust for providing good quality and convenience. The business is a platform for future expansion and the Company is considering opportunities to get bigger through new locations and business channels.

The Home business is increasing strongly, with home furniture and gifts the best growing product areas. Beauty, although relatively small, is also growing rapidly. These two areas offer promising opportunities for progress and will be expanded.

Store Renewal Programme

M & S will go faster the rollout of the successful elements of its new idea format under a plan to renovate more stores sooner and at lower cost.

Closer To The Customer

As a company we should be in touch with our customers all the time in order to develop an awareness of what our customers think about the company, how they perceive the company and what they expect from the company. This awareness in turn enables us to constantly strive to meet our customers' demands and also secure an organization's long-term survival and profitability

In order to be more customers based, some of M & S stores in big cities will be opened 24 hours a day. On other hand, 125 stores in the UK will be modernised to create a easy-to-shop environment and more attractive for customers.

Corporate-Level Strategy (BCG matrix)

BCG Matrix is used to conceive the balance of the portfolio of the businesses in terms of relationship between market share and market growth. It is a company in a market that has slow growth and its market share is continuously shrinking. The industry in which M & S operates is mature and market is likely to be stable so it is more difficult to gain market share. It's assumed that M & S is a decline phase organisation (Stockport,2000).

PESTEL And SWOT Analysis

Political, Economic, Social, Technology, Environmental and Legal (PESTEL-Analysis)

Political

Long term decisions are based on stable political surrounding. UK is also a member of European Union, as a result of which the government has to operate to live up to the standards of European Union's structure, hence, ensuring M & S a greater scope of economic executions . The open transfer of goods & products is another advantage of European Union making the sales operations of M & S easier in European counties as there are no barriers to trade to aggravate its sales revenues.

Economic

British pound is still stronger as compared to the Euro which is why foreign investments for M & S are relatively cheaper but expensive for the other foreign organizations willing to initiate in the UK. This is also a reason that several countries are not willing to trade.

Social

Presently, the population in UK is 61.11 million which after 15 years from today is expected to reach to 65 million. This brings in good news to M & S Company as many more customers will be added to its current list, however the population is ageing. (True Knowledge)

Secondly there is a dramatic change in the social structure. Medical service's progress & awareness of living increases life expectancy. Sex education's development & increase in the number of professional or working women has led to a decrease in the rate of Birth which are the factors that have been accounting for falling revenues for an experienced company such as M & S.

Technological

New Media's reception & an age old internet bring in an evaluated potential opportunity to M & S to grow its profits. Some U.S. based organizations are offering online orders where in people can mention their demands & preferences which are sent to the production facilities & after 2 or 3 working days customers receive their orders. This was simply another example of possibilities by the use of which firms can actually respond to the ever changing preferences in new era.

Environmental

Products produced by supplier has affect on the atmosphere on how these produce is used and disposed by customers. Merchandisers use a vast range of raw materials to manufacture their products. Because of this, it is critical to handle the usage of these materials with sensitivity and pay proper regard to how they have an effect on natural habitats and bio-diversity.

Legal

This is related to the legal environment in which firms work. In past years in the UK there have been a lot considerable legal changes that have affected firms' behaviour such as M & S.

SWOT-Analysis

Strengths

The Brand of M & S is an asset to it in terms of Quality, Style & Value for money. The reason for its success and excellent reputation is that M & S sell only own brand products. M & S identify the changes in customer preferences & behaviour under extensive market overview as they are one of the largest retailers in the UK. The self production & labelling enables M & S to frequently adapt to the unpredictable market conditions which in turn also allows it to save time. Time saving & Adaptability is really necessary for a firm to succeed in such fast moving market where time plays a key role.

Weaknesses

The incomplete product range of M & S, unfortunately, sometimes affects its regular customers who then happen to purchase from its competitors. An example of that would be that M & S doesn't sell sportswear which consequently forces its customers to buy them from those who sell them. This adds to the disadvantage of M & S. An added disadvantage could be mentioned as an example i.e. A customer interested to buy M & S sportswear ( if they had it ) might have been interested in buying some gift at the same time because of the presence of sufficient variety, which could have made it extra revenues . However as they don't have sportswear, they are losing on a good opportunity for revenue.

Opportunities

In order to make profit, M & S consider social rethinking as majority of people are getting conscious for nature's significance nowadays. TO aim for Long Term success, M & S could earn a reputation as a socially conscious firm by producing with the use of environment friendly raw materials & natural fibres.

The key to success is uniqueness or individuality. According to the recent researches people are on an average are getting heavier & taller. What now can convince people to realize the presence of mind of M & S is its Adaptability.

Threats

The big supermarkets or Discounters, despite of not being present in the same market are potential threat to M & S as they sell similar products. These products are offered by them for short duration i.e. at a really cheap price for a couple of weeks. Many people advertently buy these low priced products instead of going for a good quality. This strategy of Hit & Run adversely affects the businesses of companies like M & S.

Michael Porter Five Forces Model

Porter's five forces is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven down to zero.

Three of Porter's five forces refer to competition from external sources. The remainder are internal threats. It is useful to use Porter's five forces in conjunction with SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats).

Threat of New Entrants

Entering into a New Market needs huge finances to purchase necessary raw machineries, develop new products , hire staves , selling-rooms & to build an organized systematic network . Organisations such as Jhon Lewis, Tesco & Sainsbury can very easily enter into new markets as the monetary risk for banks are very elevated to assist smaller firms & also that they do not have the potential to respond to the defensive attacks of existing firms.

Brand Loyalty is no more a threat to new firms, presently, thus making it a threat to M & S. Customers use advanced technology to evaluate & compare several offers during a short span of time & are willing to purchase the cheapest possible product. These Generation X or technology savvy people have been a huge segment targeted by M & S, which can be alarming for it.

Threat of Substitutes

Product substitution & Replacement of Firm need to be distinguished while discussing substitution. The decision of a customer to purchase an item & then a change in his decision to have another is referred to as Substitution of Product, i.e. A customer might probably buy a jumper if he merely does not like the design of a M & S jacket. However, this had no impact to the revenue of M & S.

Substitution of M & S for its competitor is referred to as company replacement. In the example mentioned previously the customer would have bought a new jacket from the competitors of M & S. Now this affects the firm revenues.

The Bargaining power of the buyers

There are several factors on which the power of buyer depends. Unlimited demand is met by countless suppliers in the U.K Retail market. Therefore if the customers are not satisfied they can switch from one company to the other. Because of advanced technical knowledge & their age group, the segments of people targeted by M & S have adequate earning power. To specify changing demand & buyer trends their pattern of spending should be carefully analysed.

The customers of M & S are mainly based in Britain. If M & S turns unsuccessful in the British Market, it cannot compensate it by the revenues in the other markets

Marks & Spencer's Geographical Revenue

Region

Revenue

United Kingdom

$ 1,488.6 m

Rest of Europe

$ 29.6 m

North America

$ 0.0

Australia

$ 4.8 m

Middle East

$ 8.8 m

Asia

$ 3.1 m

TOTAL

$ 1534.9 m

Bargaining power of Suppliers

Labour costs are high for UK in comparison with that in Eastern Europe, Asia & North Africa which is why that several firms have decided to outsource. Therefore there is a pressure on M & S to produce high quality products without cutting its costs, however getting the production outsourced can be of great help as cheap labour can be appointed.

.

Competitive Rivalry

An increasing number of foreign retail chains zero in on UK as a starting point to make it big in Europe. Example Giordano , a Hong Kong based clothing retailer is very successful & plans to open & operate stores in UK for its European expansion . Marks & Spencer has been facing the counter-attack by Tesco & Sainsbury in the recent past. Debenhams & Marks & Spencer have spent a lot of money for the development of their online operations. Every possible measure to earn profits should be seemed in an Industry as this where so many firms produce the name products & are only identified by their marked labels.

Future  Strategic Direction

As mentioned earlier we know that M & S has a very wide market especially in the UK. It has been successful since decades. The only weakness it has is lack of variety of product offerings in its current market. Using Product Development as its strategic choice will enable M & S to produce additional products to cover a wider segment from its existing market. As M & S is reputed Brand, the additional products like sportswear will be equally popular.

Acceptability or the outcomes of Product Development strategy is another aspect that needs to be measured. If M & S adopts the strategy of Product development it will be avoiding the risk of losing its market share . This will increase the value of shareholder's assets.

Feasibility, now we need to evaluate the relativity of Product Development strategy with the organizational capabilities & its resources. Using its present capabilities all M & S is supposed to do is to increase its line of products from its production houses. Current capabilities & resources will serve he purpose.

For future, the aforementioned strategic choice has to be evaluated & analysed in terms of suitability, acceptability & feasibility. Suitability specifies whether or not the strategy of product development will suffice M & S strategic situation.

M & S being an experienced player can easily access the broad market overview and adapt to the changes in consumer behaviour & preferences. This can be a method to add to the benefits of M & S in the short & long run.

To cut costs M & S can rely more & more steps towards outsourcing its production in underdeveloped or developing Nations without compromising on the Quality of its products. Online participation of M & S on a large scale will add advantage to it over its competitors as a huge segment of customers served by M & S is technology savvy. The promotion of Quality of M & S through Internet can make a difference when it comes to saving its revenues being lost to the mail discounters or cheap supermarket clothing.

UK's membership in the European Union is an advantage to M & S as it provides an easy format of operation for European companies.