Marks And Spencer: Strategies for Sustaining Competitive Advantage - Case Study Example

MARKS AND SPENCER: STRATEGIES FOR SUSTAINING COMPETITIVE ADVANTAGE INTRODUCTION Found in 1894 in a partnership between Michael Marks and Tom Spencer,M&S has since grown to a 515-store located throughout the United Kingdom and 200-store worldwide operating in 30 countries (Tables 1 and 2). The beginnings of Marks & Spencer started with a philanthropic act of Isaac Dewhirst, an established local businessman, who has lent Michael Marks 5 pounds and his first opportunity to buy and sell goods in London during the 1880s. Michael Marks soon went into partnership with Tom Spencer, chief clerk at Mr. Dewhirst’s store, and built a chain of market stalls, more popularly known as ‘penny bazaars’. Little did Mr. Dewhirst know that his philanthropic act would soon become one of biggest retailing empire in United Kingdom (Marks and Spencer.com, 2006). Table 1. Store locations. Marks & Spencer No. of Stores United Kingdom 448 UK Franchise 46 Republic of Ireland 13 Hong Kong 8 Total 515 International Franchises 202 Grand Total 717 Source: Marks and Spencer (2006). Annual Report and Financial Statements 2006. Retrieved from http://www2.marksandspencer.com/thecompany/investorrelations/annual_review06/downloads/index.shtml Table 2. UK regional breakdown. United Kingdom Regions No. of Stores England 384 Northern Ireland 13 Scotland 34 Wales 17 Total 448 Source: Marks and Spencer (2006). Annual Report and Financial Statements 2006. Retrieved from http://www2.marksandspencer.com/thecompany/investorrelations/annual_review06/downloads/index.shtml The M&S brand is looked up to when it comes to stretching one’s brand name. For years, British consumers did not have difficulty in understanding why M&S sells chicken curry, brassieres, and hand towels. In fact, many UK consumers equate M&S brand for the trusted quality they have known for years and M&S brand has been identified with the stately British institution for its stoic and proud British culture. A culture that can be describes with “nice manners, gray Sunday afternoons and every gentleman wearing a hat.” However, this was Britain in 1956. British today are faced with far more numerous choices than before – from shopping at the supermarket or supporting local traders, choosing fresh or processed food, relaxing in branded or independent pubs and bars, etc. Businesses are also offering more sophisticated products and services to entice new customers. As a result, the culture in which M&S has so long been identified changed – changing fast (Brandchannel.com, 2006). In this paper, the research puts forth strategies for M&S to remain ever competitive in the 21st century. Word Count: 280 ANALYSIS AND EVALUATION Key Trends in the Retail Market Pressure Groups. Helen Dickinson reports that a key trend in the retail market industry is the rise of pressure groups voicing legitimate grievances to public corporations. The growth of activists, not only in the ranks of consumers but among shareholders as well, is quickly changing the market landscape especially in the UK retail industry. Dickinson (2006b, p. 13) cites, “Retailers, and supermarkets in particular, come under more pressure than most sectors. One has only to think about how many aspects of a retail business can come under public scrutiny, including product sourcing, pricing, ethics, sustainability, salary levels, nutrition, packaging, and community impact, to name just a few.” Ms. Dickinson argues that while not all companies have adopted the initiative to address these grievances, pressure group’s voices are getting louder and catching media’s attention. More importantly, Ms. Dickinson asserts that engagement of such pressure groups can enhance the retailer’s understanding of their customer needs and expectation, which is the cornerstone of retail success. Only with this understanding can retailers able to make significant and real improvement in their business (Dickinson, 2006a). Online Retailing. Another key development in the retailing industry is the growth of online retailing. While a strong network of brick-and-mortar retail stores have been the key asset for competitive advantage, the Internet has been quickly changing this. In a report of Verdict Research, internet retailing is estimated to be worth £ 8.2 billion in 2005, which accounts roughly 3.1% of the total UK retail market. Its growth rate is estimated to be nearly 30% in 2005 and by 2010, it is expected to garner approximately 6.8% of total UK retail expenditures. The retail think tank team argues that despite the hype on online retailing, it will not replace the traditional brick-and-mortar stores. For one, the online retailing presents itself as a form of promotion which retailers have longed used – catalogue retailing. Ultimately, the retail think tank team argues that the growth of online retailing presents a good opportunity as another channel. But, as Internet retailing has made operating a retail business more challenging, the real challenge for retailers is to maintain consistency across channels on its value proposition to the wider public (online Retail Think Tank). International Retailing. Globalization has been a key trend in this century. With outsourcing the manufacturing of products to Asian countries with lower labor costs, retailers are also seeing opportunities in serving the growing middle class in these countries. With greater disposable income, these countries have become an attractive market for UK retailers to grow their business. Venturing overseas has historically been a treacherous strategic move for many retailers; nonetheless, retailers have learned their lessons and today with renew enthusiasm many retailers are again embarking for an international expansion. Dickinson (2006b, p. 13) reports, “the prompts for this fresh interest have been the challenging domestic retail environment and the opening up of some of the world’s potentially lucrative markets, including India, China, and Russia.” However, as UK retailers have learned their mistake, the one-size fits all approach is a thing of the past. UK retailers are now joint ventures with strategic local partners to allow them to better understand the overseas market they are trying to enter. More importantly, as the domestic market becoming increasingly competitive, overseas strategies will ever become more important for UK retailers (Dickinson, 2006b). Sustaining Growth in the Midst of Stiff Competitive Pressures Competitive Environmental Analysis Porter’s (1985) five forces of competition is a widely used tool to determine the company’s current strengths and competitive position. Having a clear picture of the balance of power in a competitive industry will help in planning for a sustained growth in the industry. In Figure 1, the researchers analyzed and plot the competitive forces in the fashion industry in which Marks & Spencer is competing. Figure 1. Porter’s Five Forces of Competition Analysis on Marks & Spencer Marks & Spencer’s Competitors Competitive rivalry among global retailers is intense. With a wide network of retail chain stores dispersed globally to strategically-placed in populated locations, retailers continually compete for space and foot traffic in their stores. With tapering market growth, fierce price competition is also obvious as retailers frequently offer sales promotion to entice buyers to purchase and increase their volume to cover their increasing costs. With a broad range of products offerings, retailers also look to increase product turnover in keeping their product offering fresh to shoppers and new to shoppers (BRC-KPMG Retail Sales Monitor online, 2006; Datamonitor 2006). Marks & Spencer competitors are not only local UK retail competitors, but are global players as well. With an army of employees and suppliers at their command, retailers such as Wal-mart and Tesco are constantly competing to protect and increase their market position (Datamonitor 2006). In addition, with the lucrative markets such India, China and Russia opening up, global retailers are in a race to establish their stores in these emerging markets (Dickinson, 2006b). The key strategy for Marks & Spencer is to defend and protect its retail market share in the UK and slowly expand its international network to increase sales and make the most of the opportunities in the emerging markets. Buyer Power Buyer can affect strong pressures to retailers. Buyers dictate what they want and what they need. In the face of various product choices and services, buyers can easily switch stores and buy what they want. Buyers are a large group and places relatively high importance in affordability, taste for food products, and fashion style for clothing and home products. Buyers include local consumers and tourists. Aside from the purchasing power, buyers can also pressure retailers in different aspects on how they conduct their business such as responsible procurement practices, health concerns, and sustainable environmental programmes. Pressure groups pose as both as a challenge in the business practices of retailers but as an opportunity well in understanding the consumer’s needs and expectations. Moreover, retailers can use this understanding as a marketing tool in promoting their brand and improving corporate image (Dickinson, 2006a). Supplier Power Marks & Spencer suppliers generally come from the Asian countries with manufacturing costs significant lower than in the United Kingdom. Supplier’s capacity can command a significant pressure to Marks & Spencer as many textile companies outsourcing their manufacturing to them as well. Furthermore, supplier costs both on raw materials and labor costs can have a significant impact the company’s value chain. With rising oil prices affecting costs of raw materials and basic commodities, retailers experience the crunch in their margins. The key to effectively handling the pressure from suppliers, Marks & Spencer partnered with key suppliers in managing the whole value chain and procurement process. With better sourcing process, Marks & Spencer is able to efficiently transfer the right products at the right price from the manufacturer’s warehouses to its retail stores (Marks and Spencer 2006). Threats of New Entrants and Substitutes Threats of new entrants is very minimal because the high capital investment to set a network of retail chain stores, and the economies of scale required to compete profitability in the industry. However, substitutes such as flee market and wet market are also available for consumers. These substitutes offer significant mark down in prices of product offerings and with price conscious buyers, prices can be a significant criterion for product purchases. However, the drawback of flee markets is its inability to guarantee the quality of their products in the long term and established suppliers to provide the customized product offerings to the buyers. Despite the fact that flee markets can be a strong alternative in shopping in department stores, it is indeed limited to specific geographic location and season. Word Count: 1281 NECESSARY STRATEGIC CHANGES As we have analyzed the competing forces that could affect the overall success of Marks & Spencer in the retail industry, we also recognize the need to be able to identify the strength and weakness of M&S as well as external opportunities, and threats. Table 3 illustrates a SWOT analysis of M&S strategic capabilities. The value of the SWOT analysis is its ease of use, its simplicity, and its flexibility. In addition, SWOT analysis allows the synthesis and integration of various types of information, which are generally known but still provides the possibility to organize and synthesize recent information as well (Thompson & Strickland 2003, p. 117). The insight to be gained in performing the SWOT analysis is the understanding of the core competency of the company that would give it a distinctive competitive advantage over its rivals. More importantly, it provides the groundwork on (1) how the company’s strategy can be matched to both its resource capabilities and its market opportunities, and (2) how urgent it is for the company to correct which particular resource deficiency and guard against to particular threats. It also raises questions about what future resource strengths and capabilities the company will need to respond to emerging industry trends and competitive conditions (Thompson & Strickland, 2003, p. 118-119). Table 3. SWOT on Marks & Spencer Strengths Strong brand recall and market position in the United Kingdom retail industry Improving financial performance and balance sheet Increasing foot traffic and large store network in the United Kingdom Weaknesses Geographic concentration on the UK market Low return on assets and equity Limited online transactions Opportunities Follow through with International Expansion Improving online retailing experience Greater collaboration with global suppliers and improving supplier relationships Threats Intense competition locally and globally Increasing labor wages in United Kingdom Weaker consumer spending New regulation in European Union Source: Datamonitor (2006). Marks and Spencer Group plc: Company Profile. Marks & Spencer Core Competence Core competence is defined as “the capability of a company to perform a certain task relative to other competitors.”(Thompson and Strickland 2003, p. 127; Kotler and Amstrong, 2003) It gives the company a competitive capability and thus qualifies as a genuine company strength and resource. Marks & Spencer key asset has been its brand. Its ability to sell a wide range of product category under one brand name suggests the UK market’s strong identification and affiliation with the Marks & Spencer brand. Its retail chain network across UK and the internationally is also one of the key strengths of the company. Its core competency has always been its strong customer intimacy and its retailing know-how (Rose 2006). This, coupled with its strong brand name and market position, gives M&S its competitive advantage in the UK Retail industry. Market Opportunity and Threats Market opportunity is a big factor in shaping a company’s strategy. Strategically, the market opportunities most relevant to a company are those that offer important avenues for profitable growth, those where a company has the most potential for competitive advantage, and those that match up well with the company’s financial and organisational resource capabilities. Furthermore, it is important to note not all opportunities are worth pursuing. It is often advised to pass on a particular market opportunity unless it has or can build the resource capabilities to capture it (Thompson & Strickland, 2003). Strong growth opportunities exist in expanding Marks & Spencer stores in the international market. With robust growth in the Asian markets and growing middle class in these countries, opportunities to take part and cater to the needs of these market as well. However, expansion programme should be gradual (Dickinson, 2006b). While its focus on UK retail market has been the key in regaining market share and improving overall profitability of the company, the geographic concentration of revenues coming from the UK market makes the company vulnerable to the market conditions and relatively uncompetitive in comparison to global competitors such as Wal-mart (Datamonitor, 2006). Its refurbishment programme is also an opportunity to re-launch the Marks & Spencer brand with a fresh new look that addresses the new market conditions. The increase investments in improving the format and layout in stores are expected to generate more foot traffic. With competitive pricing across a wide product range, M&S can hope not only increase visits from shoppers but greater number of purchases and increased product turnover. Moreover, with the international expansion of Marks & Spencer stores, the new format will revive interest. More importantly, the key is to consistently offer the consistent level of customer service and product offering. However, considering the different markets catered for its international stores, M&S should partner with local operators to understand the trends and the local buyers needs and wants (Marks and Spencer website, 2006). Lastly, with the intense competition in the local UK market, increasing labor wages, and weaker consumer spending, M&S should find alternative measures in improving its value chain especially in its procurement process (Datamonitor, 2006). With inventory costs accounting for a large portion of its expense, the retailer’s ability to control stocking levels, increase product turnover, and reduce procurement costs will be ultimately set the tone in achieving the desired profitability. Word Count: 876 CONCLUSION Marks & Spencer has been for years enabled the company to build customer relationship and win customer’s trust in its product quality, customer service, and its pricing structure (online Marks and Spencer). As Fournier (1995) has explained, branding has been an input factor in influencing consumer perceptions and attitudes in enabling the company to develop profitable relationships. While, researches have emphasized brands as an input factor, evaluating the branding strategy provides insights in how marketing supports the brand and ultimately it is reflected in the improvements of business process of Marks & Spencer. As Maklan and Knox (1997) explains consumers are now looking holistically on the value-added process of the company that enhances customer value not only on the individual product features. Nonetheless, the value of the Marks & Spencer brand to the company can be measured more than just its financial value of customer goodwill. It is seen as a strategic asset (Heigh 1997) that offers differentiating factor in the marketplace (Levitt 1980) and brand as functional device trusted for its quality (Twivy, 2000). Marks & Spencer have long been trusted for its quality of products and continues to adhere to its strict standards in procurement process of quality products. Its strong brand recognition and brand recall among consumers offers a strategic device warding off competitors and effectively enables the company to build relationship among its customers. Currently, cus­tomers of Marks and Spencer have a very obvious recognition of the overall brand image of Marks & Spencer as a clothing company. More specifically, the company was per­ceived to have a clearly focused position within the UK retail clothing market and to be successful in communicating their brand to customers. Marks & Spencer needs to build a very strong culture of service and branding, especially among their store personnel. 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