The Rise and Fall of Marks and Spencer Clothing Business - Case Study Example

The Rise and Fall of Marks and Spencer Clothing Business during Yester Years: A Case Study Table of Contents Executive Summary 2 0 Introduction 3 2.0 Marks & Spencer - A Background 3 3.0 Objects of the Study 4 4.0 Scope of the Study 4 5.0 Methodology 4 6.0 Literature Review 5 6.1 Financial Performance 5 6.2 Analysis of the Problem 6 7.0 Findings 10 8.0 Conclusion 11 9.0 Recommendations 11 10.0 Bibliography 13 The Rise and Fall of Marks and Spencer Clothing Business during Yester Years: A Case Study Executive Summary: It is the order of the day that the retailers should be able to leverage the expertise of their buying and merchandising teams to innovate new products and markets to present differentiated products with lower margins but higher acceptability from the customers. This requires concentration on the various processes of sourcing including trend and concept, product design, specifications, supplier selection, production, delivery, consumption and as appropriate ongoing customer support. These days even the most vibrant retail stores operate on razor thin margins and wrong guesses about trends and customer tastes can have an immediate and devastating impact on profits and ultimately the viability of running the business. Perhaps more than any other business the retail companies must devote the utmost attention to planning and analysis. The classic example for the decline in the profitability due to wrong approach to customer tastes and lack of management ability to judge the requirements of the business is Marks and Spencer, who for years has been a stalwart of UK high streets, providing generation after generation with their smalls and snacks. This report envisages bringing out a comprehensive study of the problems that lead to the decline of the profits of the company, the possible solutions that may see the company back into action towards recovering its past glory. Key words: Retail, Fashion Trends, Profitability, Innovation, Customer Tastes 1.0 Introduction: "For better or worse, globalization has fundamentally changed retail. The wide availability of low-cost products presents challenges for maintaining both top line and bottom-line performance. Retail customers have come to expect that they can have their cake and eat it too, meaning that they can choose from a wider array of product offerings and pay a very low price for these goods." (William Brandel 2006) In fact this was the potential problem faced by Marks & Spenser during the period from 1999 to 2003 by declining sales in the clothing division. While the other high street competitors made all efforts to supply highly fashionable cat walk trendy clothing for young women at unimaginable competitive prices, Mark & Spencer didn't have anything to offer its customers like those of its competitors. With the result that the customers found alternative sources to meet their expectations and this had virtually affected the sales of Mark & Spencer. This report makes a complete review of the course of events that led to the decline in the sales and the resultant lower profitability of Mark & Spencer. The report consists of sections detailing objectives, scope and methodology of the study followed by a review of available literature leading to findings, conclusions and recommendations for the improvement of the sales of clothing line of Marks & Spencer 2.0 Marks & Spencer- A Background: Marks & Spencer is one of the UK's leading retailers of clothing, food, home wear and financial services. The Company trades in 30 countries worldwide and had a group turnover in excess of 8 billion for the year 2002 with pre-tax profit of 335.9 million for the same year. In the year 1998 it became the first retailer to make a profit of over 1 billion. The Company has 347 stores around the world with 333 stores operating in the UK. As of 2002 the company had 60,000 employees on its rolls. However, the company had severe set backs due to the decline in sales and profitability. The company put its main emphasis on quality, but for most of its history, it also had a reputation for offering fair value for money. When this reputation began to waver, it encountered serious difficulties. 3.0 Objects of the Study: The main object of the study is to identify from the available literature, the major factors that contributed to the fall in the sale of once successful clothing segment of the business of Marks and Spencer, to make a critical analysis of the management's response to those factors identified and to find out any possible solutions to the improve the retailer's market share of the fashion business and thereby increase the profitability of the company. 4.0 Scope of the Study: The study purports to analyse in general the working pattern of the retailer with respect to the clothing business, its adaptation to the changing trends and customer tastes and preferences, product positioning of the company in relation to the changes in fashion trends and the effect of the company's product-process dependencies on the market share and profitability of the company. 5.0 Methodology: The report has been constructed based on a complete review of literature comprising of Articles relating to the functioning of Marks and Spencer from professional writers appeared in various newspapers, journals, magazines and other professional bodies and associations. The study has also included the analysis of the information available from various online resources commenting on the performance of the retailer in the recent years. It incorporates the review of the financial performance of the company made by stock exchange analysts through various websites on financial and stock market analysis. Being a report on the specific problems faced by Marks & Spencer, no interviews or surveys have conducted to collect any primary data or information, which was considered not necessary based on the scope of the study. 6.0 Literature Review: This part of the report deals with the financial performance of the company during the past years, showing how the sales and profits of the company was declining, the major factors responsible for such a trend, the action taken by the company to overcome this problem and the stage of the recovery of the company. The issues will be analysed on the basis of the available literature on the studies relating to the performance of Marks and Spencer. 6.1 Financial Performance: Before we proceed to analyse the problems faced by the company, let us have a look on the financial performance of the company in the past years of its existence. Year ended Turnover ( M) Profit before tax ( M) Net profit ( M) Basic eps p) 1 April 2006 7,797.7 745.7 520.6 31.4 2 April 2005 7,490.5 505.1 355.0 29.1 3 April 2004 8301.5 781.6 52.3 24.2 29 March 2003 8019.1 677.5 480.5 20.7 30 March 2002 8135.4 335.9 153 5.4 31 March 2001 8075.7 145.5 2.8 0.0 1 April 2000 8195.5 417.5 258.7 9.0 31 March 1999 8224.0 546.1 372.1 13.0 31 March 1998 8243.3 1,155.0 815.9 28.6 31 March 1997 7841.9 1,102.1 746.6 26.7 31 March 1996 7233.7 965.8 652.6 23.3 From a study of the financial performance of the company Marks & Spencer for the past periods, it can be seen that although there is no major dent in the sales of the company, the profitability had a severe beating starting from the year 1999 and continued till the year 2002 worst being the year 2001. The company could make a net profit of only 2.8 million in the year 2001 out of the total turnover of 8075.7, The sales declined by around 120 million in the year 2001 as compared to that of the year 2000. Although the company has made a comeback as of now, the company's clothing, footwear and gift sales fell 9.1 percent in the 14 weeks up to July 7th in 2001. This period was the peak time for the company's problems to come to foray. During this period the sale of home furnishing slumped by 1.5 percent and the general merchandise sales dropped by 9.2 percent as compared to the corresponding period in the last year. Shares in the company opened 7p or 2.8 percent lower at 242p. 6.2 Analysis of the Problem: The crux of the problem of Marks & Spencer was the one relating to the management's negligence or ignorance to look around the latest developments and happenings in the fashion retail world. The company was depending on its past glory and fame that was created by its commitment to the quality. But it was proved that, it was not enough to just depend on the reputation and goodwill alone. What was needed is the ability of the company to get adapted to changing styles, fashion trends and customer preferences. The company totally lacked direction in this particular area which resulted in even the loyal customers turning their backs on the stores. Consider the following statement. "M&S was seen as a reliable, if unexciting, source of office and casual wear. Trips to M&S to buy school uniforms heralded the end of summer for many generations of children. But then something went wrong. The clothes sold under the St Michael brand failed to excite teenagers, the Club 18-30 crowd and thirty some things. Wrong style didn't just cover what was hanging on the rails." (BBC Article 2002) From this it becomes evident that Marks & Spencer stores were too big and too bland without a proper product mix that would be appealing to the younger generation. Hence the retailer could not compete with other best in the industry like Next or Monsoon, who were able to keep abreast of changing trends in the fashion industry. "Sales of clothing tumbled in the first quarter despite efforts to turn the business around and its home furnishings department was also hit. Roger Holmes, managing director for UK retail, said the group had managed to stem the decline in parts of its all-important clothing division. But he admitted that womens wear was continuing to lose ground against high street rivals." (Staff and Agencies 2001) According to the business analyst from Credit Suissee "Marks & Spencer clothing is "not very price competitive" and as a result customers are being lured by cheaper, snazzier and more aggressive rivals. Management attempts to make the stores more shopper friendly have only confused matters," (Ben Richardson 2004) According to Max Blumberg, expert in market strategy, only few corporate brands can hold together a variety of subsidiary products. However this principle is not applying in the case of Mark & Spencer. For Mark & Spencer it should be one idea and one brand. Dealing food and clothing is different and combining them gives rise to the following issues to the management of Mark & Spencer. The reporting by media of problems in one division impacts the other. This has largely affected the market strategy of the company. The two businesses require different strategies to succeed. But if a particular strategy is adopted in one division, the market will tend to assume it applies to both divisions. (Max Blumberg 2005) The above negative factors contributed to the decline in the company's trading and it was necessary that the company needed to take a marketing decision about its food versus clothing business to improve up on the sales. The Company Marks & Spencer was in a disadvantageous position because of clustering most of its manufacturing activity within the UK. But most of the competitors shifted their sourcing to different countries of the world and thereby increased the competitiveness in the pricing as they were able to source from those countries where they had a definite price advantage. Another serious issue concerning the Marks & Spencer fashion division is that the company was production driven than design driven. The company "had built many close relationships with their 1st and 2nd tier suppliers but with increase competition from low-cost suppliers abroad meant that M&S were disadvantaged compared with their competitors with the values that their chain gave them." (Omer Khan) In order to cope up with the increasing competition the company had to terminate several agreements with the suppliers in UK and the company started sourcing its merchandise from suppliers overseas. In the process several problems cropped up and it became increasingly difficult for Marks & Spencer to operate the system of just-in-time clothing. The quality of the products was not only poor but they looked incoherent in the stores as too many suppliers were involved in the design and manufacture of products. In an attempt to regain the position it was occupying the company took several efforts in the development of its clothing line. Because of its inability to bring up to date fashion and trendy garments at cheaper rates, to attract young and new customers, the store abandoned its attempts to compete with high street rivals like Top Shop, Hennes, Zara or Mango which fill their windows with fast, cheap catwalk copies. "Instead, M&S is going back to its roots, to be the sensible woman's clothes shop" and the retail major was getting back to our core customer, by addressing the needs of the classically stylish woman- according to their public relations manager. (Jess Cartner-Morley 2001) In order to strengthen its efforts to achieve a sustained competitive advantage Marks & Spencer adopted a new group strategy of sourcing aimed at accelerating the growth potential of its clothing line. This strategy resulted in materializing the goals of the company to a large extent. "M&S consolidated their suppliers to concentrate on a small but key number of suppliers with whom they developed a close personal relationship. They shifted 75% of their sourcing to their overseas suppliers with whom they now dealt with directly and invested in their core competence design to manage their operational and supply risks." (Omer Khan) 7.0 Findings: As a result of the study of the available literature on the problems relating to the decline in the sales of Mark & Spencer the following key factors were found to be responsible for the decline in sales of the company: 1. Low Cost Products from competitors: Marks & Spencer could not follow the strategy of competitors as to how they can source and supply fashionable items at a lower cost. 2. New Product Trends: While the competitors could introduce new products into the market at a record time that too according to the customers' demands Marks & Spencer could not follow the lead. 3. Prices squeezes: With the long standing relationship with the local suppliers Marks & Spencer was not able to effectively exercise the much important act of price squeezing to its suppliers. This has resulted in higher cost for the company and the resultant retail prices. 4. Dynamic Market Demand: With the slower reaction from the management of Marks & Spencer the company was not in a position to analyse the changes in the consumer behaviour relating to its textile products. Fashion Trends were changing everyday and the company did not cope up with the required changes in its policies towards product mix in accordance with the change in demands. 8.0 Conclusion: With the recent trends in retailing, especially in fashion industry, the customer is the supreme power. As a consequence innovation not only in products but also in product-process dependencies is a must for any organization to succeed in their business. The analysis of the performance of the company after the period from 2004, when the company has improved on the sales as well as profitability, suggests that the company Marks & Spencer had identified the weakness associated with the strategy concerning their debacle in the clothing sales. The company found out that it should ensure an efficient management of its core competencies and following this, the investment of the company in newer designs had mitigated the company's problems relating to operational and supply related inefficiencies. This the company could achieve by establishing a transformation in it supplier relationship policies. 9 0 Recommendations: Accessing to the information on dynamic changes in customer demands and adapting to the requirements accordingly is the best solution for Marks & Spencer to augment the sales in Fashion retailing. Methodologies like 'Quick Response' (QR) and 'Fast Fashion' which result in brining the up to date fashion trends to the customers at the shortest lead time would prove beneficial to the company. Proximity of the design centers to the production center or if it is not possible then a frequent on line communication between the design team and the suppliers would go a long way in the production understanding what the design team needs and transform their designs into apt physical apparels. A very efficient information technology system advising the design team of the latest trends and innovative changes in the designs will be at the root of the success of the company. 10.0 Bibliography: 1. BBC Article 2002 Is Marks & Spencer back in Fashion BBC News World Edition [Online] Available from: http://news.bbc.co.uk/2/hi/business/2119606.stm Accessed on 24th February 2007 2. Ben Richardson 2004 Is Marks & Spencer's Decline Terminal BBC News Online [Online] Available from: http://news.bbc.co.uk/2/hi/business/3624961.stm Accessed on 24th February 2007 3. Jess Cartner-Morley 2001 Chastened M&S Goes Back to Roots Article in Guardian Magazine [Online] Available from: http://www.guardian.co.uk/Archive/Article/0,4273,4211977,00.html Accessed on 24th February 2007 4. Max Blumberg 2005 Marks & Spencer Strategy Changes Needed Urgently Max Blumberg Positioning Game [Online] Available from: http://maxblumberg.typepad.com/dailymusings/2005/01/marks_spencer_r.html Accessed on 24th February 2007 5. Omer Khan Managing risk by internalising product design in fashion retail: An exploratory case of Marks & Spencer Manchester School of Management United Kingdom [Online] Available from: http://www.iimm.org/knowledge_bank/IFPSM/Omera%20Khan.pdf Accessed on 24th February 2007 6. Staff and Agencies 2001 Marks & Spencer Hit by Falling Sales Article in Guardian Unlimted [Online] Available from: http://business.guardian.co.uk/story/0,,520102,00.html Accessed on 24th February 2007 7. William Brandel 2006 The New Retail: Driving Growth through Product and Supplier Innovation White Paper prepared by Industry Directions, October 2006 [Online] Available from: http://www.industrydirections.com/pdf/NewRetail.pdf Accessed on 24th February 2007 Read More