Analysis of Marks and Spencer Company - Case Study Example

MARKS AND SPENCER-ANALYSIS REPORT This report provide an insight into the company "Marks and Spencer Group Plc" with relevant discussion illuminating the structure of the organisation in terms of management, the company's business, its history and how it came up in the lime light all the way from nothingness, the major products and attractions of the company, the financial position of the company, the investment prospects it currently holds, and finally a reflection of the its overall position with the help of SWOT analysis in order to better analyse the stance of the company. Furthermore, to help depict the financial position and investment potential of the company, the financial ratios have also been used in the report. MARKS AND SPENCER-- MANAGEMENT STRUCTURE The company's management structure has been depicted in the Corporate Governance section of the company's annual report for the year ended 2005 (Corporate Governance, accessed 24.02.06). It can be summed up as: The company has a triangular top management structure; this triangular management structure consists of the three Board Committees that are the Audit Committee, the Remuneration Committee, and the Nomination Committee. All the three board committees supervise and exercise power on different aspects of the company's activities and operations. Also, these committees further consist of different members with specialised tasks. The Audit Committee consists of three members and manages the financial activities inside the company, such as supervising the company's periodic audits, coordinating with the external auditors conducting annual mandatory audits for the company, and superintending the process of annual statutory accounts formulation and furnishing it to the shareholders of the company. The Remuneration Committee undertakes the task to manage the remuneration related activities for the company's employees such as bonuses and increments etc. The Nomination Committee manages the activities concerning the appointment and designation of the company's directors and managers. Apart from the above-mentioned committees working as part of the board, the company's top management also consists of seven directors and one group secretary also acting as the head of Corporate Governance. The financial base consists of two Group Finance Directors, Ian Dyson and Alison Reed, who undertake the responsibility to control and regulate the financial matters in the company. MARKS AND SPENCER-THE COMPANY HISTORY Marks and Spencer plc has had centuries old history of expansion, augmentation and amplification. It started when a Jewish immigrant Michael Marks alone opened a store in the year 1884. He continued to run and manage the small business alone for a decade and after 1894 it was joined by another individual i.e., Thomas Spencer. The business continued to expand and grow under the management of these two legends. They both believed in expanding the scope of their business and therefore, by the end of the 19th century, they managed to open and run 24 stalls and 12 shops in England. Especially in the beginning of 20th century, they practically stepped into the corporate world by getting registered as a private company under the name of "Marks and Spencer Ltd". After adopting this name, the company continued to gain popularity and public acceptance all over the Great Britain with a strategy of selling the British-made products only. By this way, the company earned prestige and stabilised relationship with reputable manufacturers and suppliers in the Great Britain. The son of Michael Marks, Simon Marks, became the Chairman of the company in the year 1916 along with his brother in law Israel Sieff who with joint efforts turned the company into a retail chain store. In the year 1926, the company's shares were floated in the stock exchange and thus Marks and Spencer continued its further expansion with a significant share of public in its capital and profits. In the mid of the 20th century, the company expanded the scope of its business operations to the international world outside the UK by opening M&S stores in Canada, United States, France and other countries. Unfortunately, none of the company's operations could turn into a success story other than the business in Canada, where the company at a specific time had about 47 stores across the country. Due to the subsequent failures in the international market, the company had to close all its operations outside the UK in the beginning of the 20th century one by one. Therefore, the fortune continued to bless the company until the beginning of 21st century. But it gradually lost its position as the market leader not only in the international market but in the United Kingdom as well. Currently, the company is going under the process of strategic revision and development of new marketing policies to bring the customers under the old M&S spell once again. MARKS AND SPENCER- PRODUCT AND PROMOTION The company does not cater to a specific target market rather its stores offer a complete range of products for every type of customers ranging from very young to very old ones. This is what makes the company diversified in its target market. The company had been a king of clothing retailers in the past and even today it is one of the largest fashion-clothing retailer in the Great Britain. It has something for every one, for example its stores contain a vast product collection on fashion clothing at reasonable prices for women, children, men and teens. The company also deals in fashion accessories, plus it has also introduced food and home products to its conventional clothing based product line in order to attract more customers to the stores. (Home, accessed 25.02.06). The company has long avoided the promotional activities and considered its store as the best promotion place, however, after having confronted with huge sales decline it has turned towards TV and magazine ads as well as towards the improvement of its store environment and shopping experience. MARKS AND SPENCER- INVESTMENT POTENTIAL The investment prospects in Marks and Spencer plc can be determined by the use of some particular financial ratios (Fundamental Ratios, accessed 25.02.06). These ratios and their analysis have been discussed below: Return on Investment (ROI) 2005 2004 2003 17.30% 14.46% 20.01% Source: http://stocks.onvista.co.uk/figures_fundamental.htmlID_OSI=6551420 The company's returns and profits have declined as compared to the ones during the mid of 1990s and now these are found to be fluctuating year by year as well depicted by the above chart. The company's return on investment ratio was as high as 20.01% in the year 2003, which declined to 14.46% in 2004 and finally the year end results of 2005 show an increase in the return on investment to 17.73%. It means that the company's annual earnings on its investment in total assets have been fluctuating over the years because of the company's deteriorating financial stance. Earnings Per Share 2005 2004 2003 0.45 0.31 29.99 Source: http://stocks.onvista.co.uk/figures_fundamental.htmlID_OSI=6551420 The Earnings Per Share refers to the profit transferred by the company to its shareholders in the form of the increase in the market price of the company's shares. It is particularly important for the shareholders interested in the market price of the company's shares. Marks and Spencer plc has had a great decline in its investment potential in terms of EPS as shown by the above chart that the company's earnings sunk from 29.99 per share in 2003 to 0.31 in 2004 and then 0.45 per share in the year 2005. It reflects that the company has lost much of its investors' trust during the past few years. Although the condition seems to be improving in the year 2005, yet it is far from its own previous mark. Earning Yield Growth 2005 2004 2003 +44.15 -98.96% +277.78% Source: http://stocks.onvista.co.uk/figures_fundamental.htmlID_OSI=6551420 The earning yield growth rate for Marks and Spencer plc shows that the company has had a sharp decline in the earning per share to its shareholders. In 2003, the company's EPS had increased by about 277.78%, which decreased surprisingly by 98.96% in 2004 and finally recovered its EPS growth by 44.15% in 2005. This on one side reflects the loss that must have occurred to the shareholders in the year 2004 due to sudden decrease in the market price of the company's shares, while on the other side it encourages the investors that the company is heading towards improvement and recovery from its past losses and financial crisis. Dividend Per Share 2005 2004 2003 0.18 0.17 0.15 Source: http://stocks.onvista.co.uk/figures_fundamental.htmlID_OSI=6551420 The dividend per share reflects the investment potential of the company in terms of earnings transferred by the company to its shareholders in the form of dividends every year. It is particularly of interest to the investors and shareholders interested in the company to obtain long-term gains by means of dividends. The dividend per share given by the company as explicated in the above chart reveals that the company has been paying dividends to its shareholders at a stable increasing rate. The dividend paid by the company in 2003 was 0.15 per share, which gradually increased to 0.17 in 2004 and 0.18 in 2005. Therefore, it shows that the company is worth investing for the shareholders interested in dividends paid by the company every year. GROWTH RATES FOR 2005 The following growth rates (Marks and Spencer Group Plc, accessed 25.02.06) reveal some of the reasons as to why the investors should consider Marks and Spencer for the purpose of a profitable investment: Growth in Earnings Per Share 76.60% Source: Marks and Spencer Group plc http://uk.moneycentral.msn.com The above chart displays the growth in the per share earnings obtained by the company's shareholders in the form of market price of the company's shares. The EPS of Marks and Spencer has increased by 76.60% in the year 2005, which reveals an encouraging sign for the investors to invest in the company's shares. Despite the last few years' subsequent decline in the market price of the company's shares, it seems to be improving and inducing the shareholders to further invest in their company. Growth in Dividend Per Share 6.10% Source: Marks and Spencer Group plc http://uk.moneycentral.msn.com As explicated by the above chart, the company's dividend per share has also had a growth of about 6% over the year. This again symbolise positive prospects of the company in terms of providing long-term gains to the investors and shareholders for having invested funds in the company and retaining their investment for the whole year. The above growth rate has been derived as an average for the last five years, showing that the company has had a positive trend of returning profit to their shareholders in the form of annual dividends. MARKS AND SPENCER- SWOT ANALYSIS The following chart displays the SWOT analysis i.e. strengths, weaknesses, opportunities and threats for Marks and Spencer in the current period: Internal Strengths Strong British vision Commitment and satisfaction of employees and workers Long-term relationship with suppliers Support to old Marks and Spencer image Internal Weaknesses Weak business model Inefficient management Poor shopping experience for the customers i.e., store environment Less modern and fashionable image among the customers External Opportunities Market giant Long-run existence Having pre-captured a vast range of customers Increasing trend for fashion clothing Segregated target marketing External Threats Increasing Competition (such as Next Plc and Tesco etc) Changing tastes of young customers Rising costs of British suppliers and increasing reliance on imported goods Shifting loyalty of customers towards the competitors Declining market share References Corporate Governance, (n.d.), accessed February 24, 2006 from the World Wide Web: http://www2.marksandspencer.com/thecompany/investorrelations/annual_review05/f/f.shtml Fundamental Ratios, (n.d.), accessed February 25, 2006 from the World Wide Web: http://stocks.onvista.co.uk/figures_fundamental.htmlID_OSI=6551420 Home (n.d.), accessed February 25, 2006 from the World Wide Web: http://www.marksandspencer.com/ Marks & Spencer, (n.d.), accessed February 24, 2006 from the World Wide Web: http://www.answers.com/topic/marks-spencer Marks & Spencer Encyclopaedia, (n.d.), accessed February 24, 2006 from the World Wide Web: http://www.tiscali.co.uk/reference/encyclopaedia/hutchinson/m0074896.html Marks and Spencer Group Plc, (n.d.), accessed February 25, 2006 from the World Wide Web: http://uk.moneycentral.msn.com/investor/invsub/results/compare.aspPage=GrowthRates&Symbol=GB%3amks Read More