Marks and Spencer: Standard to Which Other Companies Look to

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Table of Contents

History
Mission Statement
Objectives
Pestel Analysis
SWOT Analysis
Gap analysis and Ratios
Five force analysis
Recommendations
Conclusion
Works Cited

History

In 1884 Michael Marks, a Russian-born Polish refugee opened a stall at Leeds Kirkgate market. Since then, Marks and Spencer were born, opening over 300 stores worldwide and also being the UK’s largest clothing retailer. In 1999, online shopping was introduced to their website for customers to enjoy in the comfort of their own homes. The internet had just started to become known and more and more people were starting to use it, so Marks and Spencer took this opportunity and set this up at the correct time. In 2000, M&S brought out their healthy ‘Count on us’ range, for the healthier people on diets or who were just watching what they ate. (Andrew, 167)

Their 1st ‘Simply food’ stores opened in Surbiton & Twickenham in 2001, selling nothing but healthy food, no home furnishing or clothes like the normal stores. They also launched ‘Per Una’ a brand of clothing specifically targeting fashion-conscious women. Shortly after in January 2001, ‘Blue Harbour’ was introduced, a casual wear brand for males.

‘View form’ and ‘DB07’ another brand of clothing was introduced in 2002, ‘View form’ for sportswear and ‘DB07’ for children designed in collaboration with David Beckham. In 2004, was M&S’s 120th anniversary, celebrating Michael Marks’s 1st stall opening in 1884. In January 2006, M&S expanded of ‘Simply Food’ format with the acquisition of 28 stores on a leasehold basis from Iceland Foods for consideration of £38 million. M&S sold Kings Super Markets, its only non-M&S branded business to a US investor group consisting of Angelo, Gordon & Co., MTN Capital Partners, and Mr. Bruce Weitz for $61.5 million in cash in March 2006. (Judi, 130)

M&S and two of its long-term suppliers, in May 2007, decided to start the development of M&S’ first ‘eco-factories’, pioneering innovative methods of sustainable manufacturing. One factory in Sri Lanka would make lingerie and two factories in North Wales would manufacture furniture upholstery. In June 2007, M&S is launching its brand, LCD widescreen TVs, including a 15in TV/DVD model, which boasts an LCD widescreen, IDTV, and an integrated DVD-a combination unique to the market. This range is in addition to the existing collection of Sony TVs currently available at M&S. (www.euromonitor.com)

Mission Statement

Marks and Spencer’s mission statement is broken into 3 parts which include:

Vision – To be the standard against which others are measured
Mission – To make aspirational quality accessible to all and
Values – Quality value, service, innovation, and trust.

This mission statement has been kept up since the start of making it; M&S has worked hard to achieve all these factors. Even though there have been ups and downs during the years they have tried hard and have kept to their word. Many companies look up to M&S and measure themselves against them, helping their company to improve and gain more customers.

Marks and Spencer’s have been known for their quality value, service, innovation, and trust to all their customers who as a company they have stuck to very well. They are continuing to attract new customers as well as keeping their old ones, offering them new and improved products all the time.

Objectives

Every year M&S had many objectives which were to be met, they were not split into long-term and short-term but just objectives as a whole for each coming year. In 2001, they had many objectives but their main ones were attracting new customers, developing stronger relationships with their suppliers, aim for market leadership and also to restore the heart of M&S, stop non-core and profit losing activities, and also keeping an effective balance sheet calling these three sectors their fundamental strengths. In 2002, not only did they want to develop stronger relationships with suppliers but also to build on a unique relationship with their customers. They needed to keep rebuilding on their fundamental strengths, continue to regain market leadership with value, quality, and also appeal. (Evans, 51)

It was aimed for M&S to open their 1st standalone home store in spring 2003, also to improve every aspect of their company, overcome the competition and continue to attract more customers to their stores. Before 2004, the M&S fundamental strengths were changed, which included improving the management team, still ensuring the balance sheet was effective, and also delivering impact but low-cost improvements. In 2005, M&S only wanted to refocus on their core values in their business which are quality, value, service, innovation, and trust.

Pestel Analysis

In this section, a PESTEL analysis will take place and will look at the external factors that impact Mark and Spencer’s performance.

Political

According to the Marks and Spencer website, there are constraints on out-of-town shopping that have been put in place by the government. This is causing problems for M and S. This is because it is highly expensive for retail stores to be in the center of large towns and cities with all the business rates and M and S are not selling enough products to break even with these extra expenses they have to pay for being in the center. (Judi, 134) M&S is trying to move some of their stores out of the centers but constraints, it is causing problems for them. The UK not having the Euro is working as a disadvantage to M&S about their western European store because M&S products are too expensive as there are being sold at UK prices.

Economical

The UK economy and currency are relatively strong compared to other countries so the strength of the pound is working as a disadvantage to Marks and Spencer’s in the UK and abroad. (www.bitc.org.uk) Current world events have affected global economies, which may result in fluctuations within the industry. This may lead to unpredictable consumer and supplier behaviors.

Sociological

Market trends are constantly changing and Mark and Spencer’s have always struggled to keep up with them. For example, Lifestyle changes have made people more aware of their health, which has resulted in higher demand for quality healthcare-related products. People are concerned with value for money. Consumers are concerned with their image, for example; they must have the latest labels. The population in the UK is aging and with this, more people have a higher disposable income.

Technological

Internet shopping has to lead to international buying opportunities, which means the consumer has an enormous amount of options when it comes to shopping. This means that the competition has also increased, but Marks and Spencer’s can use it to their advantage to promote new products and help to show that Marks and Spencer’s is an up-to-date company. (www2.marksandspencer.com)

Environmental

M&S is restricted to where they can build its stores because of the restrictions on Brownfield sites and Greenfield sites. M&S can only build on Brownfield sites which restricts them to having to stay in urban areas with the competition.

Legal

The government is constantly redefining trading laws, which enables Marks and Spencer’s to trade for longer hours, for example; longer shopping hours on a Thursday. Marks and Spencer’s must follow advertising laws that are put in place to protect the consumer but also to promote fair competition between companies.

SWOT Analysis

The Swot analysis looks at a company’s strengths, weaknesses, opportunities, and threats which are likely to have an impact on the company’s performance.

Strengths

Marks and Spencer’s has been running since 1884 and has a good traditional reputation, especially with the older generation. Marks and Spencer’s is also one of the biggest retailers on the high street having stores in most cities and large towns and with thirty other stores across the globe. (www2.marksandspencer.com) The brand name is known in nearly every household. Marks and Spencer’s has a diversity of products such as food, underwear, menswear children wear, women wear, and furniture.

Weaknesses

Fashions are constantly changing and Marks and Spencer’s cannot keep up with changes in the retail market. There are also problems with focusing on the right targets markets in terms of products and customers. (www.bitc.org.uk) Many consumers still feel that Mark and Spencer’s products are old-fashioned and outdated compared to competitors. Even though this is something that Marks and Spencer’s is constantly trying to change. Marks and Spencer’s is now experiencing poor performance across the globe which has resulted in the pullout of foreign operations.

Opportunities

Marks and Spencer’s has the opportunity to collaborate with other companies to widen up the product range even more. They could also collaborate with designers to help bring new ideas, and help expand on their furniture and beauty products.

Threats

There is constant competition from competitors such as John Lewis, Debenhams, and Next. And especially from younger clothing competitors such as New Look. Ever-changing fashions trends which Marks and Spencer struggle to manage are threatening Marks and Spencer’s performance.

Gap analysis and Ratios

Gap analysis involves identifying a gap or weakness in a specific company and looking to bridge that gap to meet a target objective as to where the company wants to be.

The following quote helps to further identify a gap analysis:

“Gap analysis consists of defining the present state, the desired ‘or target state’, and hence the gap between them. In the later stages of problem-solving the aim is to look at ways to bridge the gap defined” (www. Ifm.eng.cam.ac.uk) An example from Marks and Spencer is their downfall in the womenswear market, which in 2006 fell 0.6% to a 10.4% share of the market. Competition in womenswear has increased dramatically with women demanding style, quality, outstanding value, and real choice.

For Marks and Spencer to reclaim this market share they set out a clear plan, this involved listening to customers better during store visits, focus groups, better use of market data, and keeping a closer eye on tracking trends, tracking competitors, and also evaluating their performance. (Patrick, 108)

From a purchasing point of view, they looked to strengthen their buying teams, giving clearer responsibilities for design, buying, and merchandising. The company buying strategy changed to buy less, more frequently meaning better ranges and fresher lines of stock. It was also vital that Marks and Spencer didn’t miss out on key trends like they previously did in 2003 such as with cardigans.

To further close that gap Marks and Spencer learned that they have to cater to particular needs and markets. For instance, it is estimated that 42 % of womenswear brought is by women under the height of 5ft 3 inches, Marks and Spencer didn’t previously cater for these, often producing large, baggy clothing. Marks and Spencer have now produced a petite range in 33 of its stores to cater to this market. The three ratios that were decided to assess Marks and Spencer’s financial position were the current ratio, gearing ratio, and return on capital employed ratio.

Firstly the current ratio can be calculated by dividing current assets by current liabilities, this identifies how far a firm can meet its short-term liabilities from its current assets without having to raise finance by borrowing, selling fixed assets, or issuing more shares.

A ratio less than one for some time is a cause for concern; Marks and Spencer’s did have a healthy current ratio until 2003 but in the last couple of years they have dipped below one causing concern, whereas for example a competitive company such as Next has stayed consistent for the last 3-4 years. Secondly, the gearing ratio can be calculated by total borrowings x 100 % and then divided by the capital employed. The ratio shows the proportion of capital employed, which is financed by borrowed funds. The relationship between both, ought to be balanced with shareholders’ funds significantly larger than the long-term liabilities to have a health gearing ratio.

The higher the gearing ratio, the higher the risk to the company is, as high levels of borrowing represent a significant risk to the company. In 2004 Marks and Spencer’s was sky-high, massively bigger than that of competitors Next. The last ratio analyzed was the return on capital employed, this can be calculated by Operating profit x 100% and then divided by capital employed. The ratio is an important indicator of how efficiently the business is being managed. As a rule, if a company has a low return on capital employed then it is using its resources inefficiently even if the profit margin is high. In the years 2004-2005 both Marks and Spencer’s and Net’s ROCE have been high indicating a healthy return on capital employed.

Five force analysis

Porter’s five forces model (below) can be used to help make an analysis of the competitive environment for a company within a certain industry. In this case, it is Marks and Spencer in the food and clothing industry.

QuickMBA, Strategic Management (2005) states that:

“The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates.”

The threat of new entrants

There are a variety of major companies in the market such as Next, Debenhams, Sainsbury’s, and Tesco with regards to selling clothing and food products. These are well-known companies that are strong in the market so the threat of new entrants is low. A company such as Marks and Spencer (M&S) has a strong brand name which therefore creates a barrier to entry for potential new entrants. Companies would probably experience high start-up losses in an attempt to try to promote their products in terms of trying to prise loyal customers away from M&S. (Geoffrey, 271)

There is the threat however of the company take over where one company buys another one out. Examples include Morrison’s taking over Safeway and Walmart taking Asda in bids to try and create better companies without having to build many stores around the country. The government is also keen on new businesses starting up in the market to try to discourage a monopoly situation

Bargaining power of suppliers

M&S has over 2000 direct suppliers where 1500 are for clothing and 500 for its food. Marks and Spencer’s corporate site online (2007) states: “90% of other products are now sourced overseas.” Overseas suppliers provide plenty of choice for M&S and also cheaper labor.

The market that M&S is in also makes it easier for the company to bargain with their suppliers because there are many suppliers which provide clothing and food which are relatively undifferentiated so M&S can go to another supplier if they feel there are better suppliers to go to as opposed to their current ones. (Rachel, 344)

Bargaining power of buyers

There are many clothing and food companies to choose from in terms of the consumer so it is the consumers who can dictate the price by demanding quality products at good prices. Clothing and food are not specific items, unlike a Ferrari sports car. Food and clothing are readily available to everyone and so therefore a company like M&S needs to offer quality goods at the right prices to compete in a very price-orientated market. (Emerald Insight, 12) With a Ferrari sports car, it is a very prestigious item and therefore prices are not as important for Ferrari. M&S, therefore, needs to add value to their products such as the Autograph range of clothing launched in 2000 which

The threat of substitute products

If a product from a different company is cheaper then consumers may switch to that product. If there are low switching costs e.g. substitute products are much cheaper than M&S ones then there could be more consumers switching to the cheaper product. For example, a pair of jeans in M&S is £25 but in Primark, the jeans are£6. There are many retail stores selling clothes that are competing with M&S and therefore could act as substitute products. (Kannika, 43) To counteract the threat of substitutes, M&S must concentrate on ensuring absolute product quality and customer service to keep loyal customers.

The intensity of rivalry amongst existing competitors

Their food and (especially) the clothing market has fierce competition and M&S must compete with companies such as Next, Debenhams, Tesco, and Sainsbury’s for selling both their food and clothing products. These companies are all trying to obtain the largest market share possible in the retail sector.

Recommendations

On the basics of the analysis undertaken and on the strength of the inherent competencies, the company can regain its lost charm and market position by adapting to the following strategies.

Merchandise ranges more accurately tailored to local demands.
Accurate staffing models to predict demand.
Training effort on customer service.
Decentralized administration.
Improved analysis of the competitive environment.
Better information about buying decisions.
More focused and proactive communication.
Greater clarity in presentation and display.
Clear customer targeting.
More competitive prices.
Improved promotional techniques.
Introduction of more products in tune with the demands.
Improved customer service.
Frequent update of store fittings and formats.

Conclusion

Overall, M&S (Marks and Spencer) have established itself over 120 years as a well-known high street name. The mission statement that has been created by M&S highlights that the company aims to be the standard to which other companies look too in terms of retailing. The objectives highlight continuously improving the company (objectives in 2006 focused on the core values of the business). The SWOT analysis shows that M&S is a very well-known company although is poor at keeping up with fashion changes and therefore must be wary of changes and regard them as a threat.

The five force analysis shows intense competition within the industry with big companies such as Next and Debenhams selling clothes and Tesco and Asda selling clothes and food. M&S must be wary of substitute products with stores such as Matalan and Primark offering these products and also M&S must recognize that the customer has high buyer power as they have the choice of many retailers at different prices.

Works Cited

Evans, N., Campbell, D., & Stonehead, G. Strategic Management for Travel and Tourism. Oxford: Elsevier, 2003: 47-53.

Marks and Spencer, The Company Media Centre. Web.

Queensland University. Gap analysis model. Web.

FAME package. Web.

The University of Cambridge. Web.

BBC News, (2000) Inside Marks and Spencer. Web.

QuickMBA, (2005) strategic management. Web.

Judi Bevan, The Rise and Fall of Marks and Spencer: And How it Rose Again, Profile Books, 2007: 127-135.

Rachel Worth, Fashion for the People: A History of Clothing at Marks & Spencer. Berg Publishers, 2007: 334-348.

Emerald Insight. Success is so simple at M&S: Product, environment, and service are all you need: Journal: Strategic Direction, Volume: 23 Issue: 7, 2007: 11 – 13.

Andrew Seth, (2001) Geoffrey Randall The Grocers: The Rise and Rise of the Supermarket Chains. Kogan Page Ltd. 164-169.

Geoffrey Randall, Andrew Seth. Supermarket Wars: Global Strategies for Food Retailers. Palgrave Macmillan, 2005: 270-275.

Patrick M. Dunne, Robert F. Lusch. Retailing. South-Western College Pub, 2007: 102-115.

Marks & Spencer Plc. Web.

Kannika Leelapanyalert and Pervez Ghauri, Managing International Market Entry Strategy: The Case of Retailing Firms. Advances in International Marketing, Volume 17, 2006: 43-48.

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