Understanding the Macro and Micro Environmental Factors for Marks and Spencer - Case Study Example

A Study of Marks and Spencer XXXX Submitted By: XXXX Number: XXXX XXXX Number of words: 2413 (excluding Appendix and Bibliography) Date of Submission: XXXX University of XXXX A Study of Marks and Spencer Company Overview: Marks and Spencer is one of the top six retailers within the United Kingdom. The group was started way back in 1884. Then a small stall opened by Michael Marks. This stall grew to become Marks and Spencer Ltd Corporation by 1903, and has seen continuous growth since. Today Mark and Spencer is one of the leading retail stores in United Kingdom with over 21 million visitors visiting the stores each week. The company now operated out of almost 600 stores in UK and abroad and an expanding international business. The company provides a variety of products and is the leaders in the women’s wear and lingerie in UK, with a growing market for the men’s wear, kids wear, and the online business. The company provides high quality, excellent value clothing and home products along with the wide variety of outstanding quality food globally (M&S, 2008). The company has reported revenues of almost £9,022 million as of 29 March 2008, which shows an increase of almost 5.1% over the revenues of March 2007 - £8,588.1 million (M&S – Financial Highlights, 2008). It is essential to understand that all the strategies set by organizations are concerned with a number of different aspects like its own activities with the external environment, its resources, long term goals, and the values, expectations and goals of those influencing strategies. This report aims at understanding the macro and micro environmental factors for Marks and Spencer. Discussed herein is also a competitor’s analysis of the company. The next section details the macro - environmental factors of the company through an understanding of the Political, Economical, Socio – Cultural, Technological, Legal and Environmental (PESTLE) analysis. Macro environment PESTLE Analysis: The PESTLE analysis help understand the external environment the company operates within. The PESTLE analysis is a tool that assists organizations make the strategies by helping the organizations focus on the external environment in which they operate at present or will in the future (Renewal Associates, 2003). Political Factors: The political factors can affect not only the present situation of the company but also the coming future. Marks and Spencer has been faced with a political change – the removal of the textile quotas by the European Union in January 2005, according to the Agreement on Textile and Clothing (ATC) by the WTO (Nordas, 2004). Economic Factors: The economic factor like the recession in the East was a strong factor that helped the company. Also the strength of the Sterling Pound was a strong benefit for the company. However now due to the increasing inflation in the country, the company is also being affected. The inflation has also caused an issue as it has reduced the purchasing power of the consumers as the value for the amount that can be bought from the same amount of money has now reduced. Also the downturn in the economy is now causing the consumers to cut back on the clothes and consumers prefer buying cheaper clothes (Fletcher, 2008). Socio – Cultural Factors: In the case of Marks and Spencer, the great brand awareness that has been created by the company plays a very important role for the success of the company. Other factors like changing needs of the consumers and the high demand for high fashion at lower prices, and the fast pace of the change in trends and fashion also affects the company to a great extent. Also along with the fast pace in the fashion trends has now decreased the customer loyalty to a great extent (Key Note, 2004). Technological Factors: These factors normally comprise of technological developments, equipments, materials, products and processes. There has been an immense growth in the technological side. It has been seen that there have been numerous developments in the information technology and software advances are high in the industry. Also with the growth of E Commerce and online trading the company has been affected in a great way (M&S – Press Release, 2007). The introduction of the Radio Frequency identity tags (RFID) has been increasingly getting standardized in the industry. This has been effective despite the consumers having privacy issues, which have been proved to be incorrect. Legal Factors: The previous issue faced by most retailers was the increase in the minimum wages. The government has kept increasing the minimum wages that in turn is increasing the operational costs of the company leading it to either cut the number of jobs or increase the price of the goods. However over the past few months with the recession setting in and the government talks of removal of the minimum wages this issue will be resolved (CIPD, 2008). Environmental Factors: The introduction of the recyclable carry bags has caused a lot of issues for not only this industry but also a number of different organizations in a lot of different industries. This has caused the companies to spend a lot of money in changing all the carry bags and has affected the company’s profits (BBC, 2008). Other factors like the Organizational Social responsibility also play a very important role and have affected the company in a few aspects. Microenvironment (SWOT Analysis): SWOT Analysis of a company is a strategic method used to analyse the company’s Strengths, Weaknesses, Opportunities and Threats. This is used to analyse the weaknesses and threats of the company and covert them to opportunities and strengths. Below mentioned is the SWOT analysis of Marks and Spencer. Strengths: Marks and Spencer has created a strong brand name for itself over the years and is now considered in the top ten retailers of United Kingdom. It is the largest clothes retailer in UK and as of 2007 had a market share of almost 11.1%. The numbers of stores that have been set up in UK and the international markets supports the strong market position. The company also has strong brand equity. It is recognized for the high quality products at reasonable prices. Also the high brand image in UK, as well as international markets is its biggest strengths. Apart from UK the company has shown growth in international markets as well. This has helped M&S to diversify and stabilize its business (Johnson & Scholes, 2004). Weaknesses: Even though M&S has moved into the international markets the major revenues are still earned from UK itself. In 2007 almost 92.9% of the revenues earned were from UK. This is a huge drawback for the company, as any fluctuations in the markets would directly affect the company’s performance. Also the online aspect of the business is still lagging behind when compared to a lot of its competitors and the services are inferior in many aspects. This limited online service has put the company at a competitive disadvantage. Also the weak revenue growth that has been faced by the company is causing a lot of liquidity issues for the company as well as affecting the commitments to the capital expenditures. A further decline in the cash flows can affect the company’s dividend pay out and also adversely affect the investor confidence (Johnson & Scholes, 2004). Opportunities: The extended market reach planned by the company will be very beneficial for the company. With the company new stores, M&S will be able to expand the market reach and penetration, thereby increasing the sales. Also the increased online sales plays a very important role and is now providing the company to grow at a very fast pace. It is to be noted that the consumer expenditure is expected to grow to almost £ 28.2 million by 2011 this is a very useful opportunity for the company to better its revenues greatly (IBEF, 2008). This is a very big opportunity for M&S. Lastly the implemented price restructuring by M&S has become an very big opportunity for M&S and has now made the company’ products cheaper than the competitors. Finally the demand for healthy food is another big opportunity for the company as it provides the fresh, natural food and is the only company to have removed hydrogenated fats from the food and reducing salt. The trend of healthy eating will continue remain and the company is equipped for the growing trend (Johnson & Scholes, 2004). Threats: The slump in the markets since 2007 has become a huge treat for the company. Also with the recession that is setting into the UK economy is now causing a huge treat for all the companies. With the increase in interest rates so will the cost of credit. All this will make consumers spend lesser and more cautious about the spending patterns. Also the intense competition faced by the company is now posing a threat for the company as it stands way behind the other retailers for the foods like Tesco, ASDA, Sainsbury etc. This type of rivalry will lead to a price war among many within the industry and will affect the performance of M&S greatly. Apart from the above factors the rising labor wages in the UK causes an increase in the labour costs, which adversely affects the company’s margins (Johnson & Scholes, 2004). Competitive Advantage: Porter’s Five Force Analysis: The five force analysis helps identify the sources of competition in an industry or sector. Porter’s five forces analyses the effects of treat of entry of new competition within the industry, the bargaining power of buyers and sellers, and the threat of substitutes to the rivalry among the existing customers. In the case of Marks and Spencer the following have been discussed: Industry Rivalry: Since M&S caters to clothing, food and home furnishing industries hence it faces competition from a number of companies. Its major competitors in the food industry are Tesco, Morrissons, Sainsburys, etc. In the clothing industry M&S faces the highest competition from Next, Debenhams, Bhs, etc (Hoover’s, 2008). The industry rivalry amongst these companies is very intense and the each of the companies Threat of New Entrants: M&S does not face a lot of treat from the new entrants since in this industry the competition is based on either price or the brand image. For M&S, the brand image that has been built is very high and it is difficult for the new entrants to compete with this as it would take a number of years to reach a level of such high brand awareness. Although there have been some quick strategies with companies utilizing celebrities for endorsements (Johnson & Scholes, 2004). Threat of Substitutes: The biggest threat for the company is from cheaper substitutes. There are a number of smaller retailers who can cater to the middle class target market by selling at lower costs and also by selling imitations of well known brands (Johnson & Scholes, 2004). Bargaining power of Buyers: The number of retailers in the industry is very high. Thus making the power of the buyers much lesser. Most companies keep competing with one another to attract the customer’s attention and thus require increasing the number of deals. Also diversification options are much higher (Johnson & Scholes, 2004). Bargaining power of Suppliers: The numbers of suppliers within this segment of the market are numerous. The various competitors compete on the basis of prices. Also with the growing requirements of fabric, companies now buy fabric from developing countries to reduce the costs. Also the suppliers have the power to forward – integrate by producing and selling their own brands (Johnson & Scholes, 2004). Competitive Edge – M&S: M&S has had a competitive edge against all the competitors because of the number of years that the company has been in the industry (BBC, 2004). The biggest competitive advantage the company has is the extensive knowledge of the customers and the supplier’s knowledge in production, logistics and information technology. This results in the fact that the company becomes stronger than all other companies acting together. This is due to the fact that there is a much higher level of flexibility in the retail trends. Because of the excellent connections with the suppliers and a joint knowledge of the manufacturing techniques the company can avoid committing to large amounts of merchandise before market testing. This competitive advantage allows the company to work on trial and error methods without causing the company huge losses if the trends in the markets change at higher paces and if a new set of designs introduced by the company fails to meet the market needs. This gives M&S a stronger hand as the company can easily work on testing the markets and avoid committing to large merchandises. Limitations of SWOT Analysis: SWOT analysis classifies all the environmental and organizational elements into four main heads. It is also possible that opportunities are overlooked and it is possible they are identified way after they have been exploited. Some weaknesses are often easy to determine however come into notice once it’s too late to create strategies to offset those (Johnson & Scholes, 2004). Similarly a company may think of a factor to be its strengths however the organization fails to see the other aspects of the same factor. Also it can be difficult for companies to identify the threats to avoid them or find suitable solutions for them. SWOT analysis only provides the managers with the strengths, weaknesses, opportunities and threats however does not give a solution to managers utilize these to develop strategies. It has been noted by a number of experts that a lot of firms do find solutions however the solutions found are for the wrong questions (Net MBA, 2008). Thus the SWOT can sometimes mislead the company and the strategies developed can be aiming at the wrong goals. Conclusions: M&S is the market leaders in UK for the clothing sections and is also making its way to the top in other products like food. The company has the widest range of good quality products at reasonable prices and provides the customers with a wide range of choice. The company has a lot of strengths when compared to its competitors and has great competitive edge, this can be utilised well for the company to increase its already large market share. The company has moved to ensure the online business also grows and develops along with the rest of the business. The company has shown excellent progress in recognising its opportunities and working towards building the company to achieve every possible opportunity and change every weakness into their strength. However with the current economic situation the company is now facing a drastic fall in the sales. M&S however has tried very hard to ensure it does not loose its market stand. References: BBC, 2004, ‘M&S voted Britain’s top brand’, 16 July 2004, Accessed on 12 November 2008, Retrieved from http://news.bbc.co.uk/2/hi/business/3899691.stm BBC, 2008, ‘M&S to charge 5p for carrier bags’, 28 February 2008, Accessed on 14 November 2008, Retrieved from http://news.bbc.co.uk/2/hi/uk_news/7268283.stm CIPD, 2008, ‘National Minimum Wages’, October 2008, Accessed on 14 November 2008, Retrieved from http://www.cipd.co.uk/subjects/pay/general/nmw.htm Fletcher, R., 2008, ‘Is Marks & Spencer the author of its own problems?’, 3 July 2008, Accessed on 14 November 2008, Retrieved from http://www.telegraph.co.uk/finance/comment/richardfletcher/2792563/Is-Marks-and-Spencer-the-author-of-its-own-problems.html Hoover’s, 2008, ‘Marks and Spencer plc’, Accessed on 11 November 2008, Retrieved from http://www.hoovers.com/marks-&-spencer/--ID__41199--/free-co-factsheet.xhtml IBEF, 2008, ‘The biggest opportunities we see are in India’, 23 April 2008, Accessed on 12 November 2008, Retrieved from http://www.ibef.org/artdisplay.aspx?cat_id=105&art_id=18672 Johnson, G., and Scholes, K., 2004, ‘Exploring Corporate Strategy’, 10 June 2004, Financial Times/ Prentice Hall; New ED Edition, London Key Note, 2004, ‘Marks and Spencer’, Accessed on 13 November 2008, Retrieved from www.keynote.co.uk/toc%5CThe%20ABC1%20Consumer%202004 M&S, 2008, ‘Company Overview’, Accessed on 11 November 2008, Retrieved from http://corporate.marksandspencer.com/aboutus/company_overview M&S – Financial Highlights, 2008. ‘Financial Highlights – Growth on 2007’, Accessed on 11 November 2008, Retrieved from http://corporate.marksandspencer.com/investors/fin_highlights M&S – Press Release, 2007, ‘Company, 2007’, 24 December 2007, Accessed on 14 November 2008, Retrieved from http://www.marksandspencer.com/gp/node/n/70782031/280-6947657-6528969?amp;mnSBrand=core Nordas, K.H., 2004, ‘The Global Textile and Clothing Industry post the Agreement on Textiles and Clothing’, WTO, Geneva Switzerland Net MBA, 2008, ‘SWOT Analysis’, Accessed on 11 November 2008, Retrieved from http://www.netmba.com/strategy/swot/ Renewal Associates, 2003, ‘PESTLE Analysis’, Accessed on 11 November 2008, Retrieved from http://www.renewal.eu.com/resources/Renewal_Pestle_Analysis.pdf Appendix SWOT Analysis: Strengths Strong Market Position Strong Brand Equity Strong International Operations Weaknesses Concentrated Geographic location Limited online transaction Weak Cash position Opportunities Increased outlets Increasing online sales Competitive Prices Increased demand for healthy food Threats Slump since 2007 Intense competition Increasing labour wages Read More