Strategic Position of Marks and Spencer: Threats for the Industry - Essay Example

 Strategic Position of Marks and Spencer: Threats for the Industry Introduction Michael Marks opened his first bazaar in Leeds in 1884. As his business was booming, he required a partner in the business. After a long search, he entered into partnership with Tom Spencer, who was a senior cashier of Isaac Dewhirst, who gave the loan to Michael Marks. Consequently, on the 28th September 1884, Marks & Spencer came into existence (M&S, 2010). Ranging from men, women and children clothing, to home products, Marks & Spencer caters foods sourced from around 2,000 suppliers worldwide. Additionally, serving each week more than 21 million customers and having over 600 UK stores, it employs more than 75,000 people in different countries. Additionally, 49% of the revenues come from the sale of clothing and home products, the remaining 51% of the revenue are contributed by the sale of food, serving from the fresh produce and groceries, to partly-made and ready meals. PESTEL analysis External environmental factors considerably influence on the internal, strategic and operational decisions of an organisation. Marks & Spencer has to plan by considering the impacts and implications of political, economic, social, technological, environmental and legislative. Political and Legislative Political and legislative factors influence on organisations. The relevant policies of governments and the guidelines of global organisations considerably show their presence in the operational policies and activities of organisations. For example, Climate Change Levy and Green Tax on the use of energy are required by the UK Legislation. According to Plan A of Eco and Ethical five year plan, launched in the year of 2006/07, it reported the carbon footprint; in 2006/07, 51%; in 2009/10, has reduced to 41% (M&S, 2010). Additionally, it has planned to reduce this figure to 0 by 2012. Economic Recession harshly hit the consumer spending and their purchasing power. In 2007, the global financial crisis started from the United States of America and spread across the globe, leaving only large scale unemployment, severely reduced consumer spending, consumer purchasing power locally and global economy as well. M& S was no exception in that case. Many of its operational units were severely hit and, still, its financial performance is aggregately decreasing and remains the same on the most of the accounts. Social Change is a constant factor in consumer choices. To remain up-to-date with the modern trends of fashion, style, design, shape, size and look; the consumers avoid remain with a one set of choices. Although Marks & Spencer has put its best clothing products in the market, yet it has failed to consider the trend and needs of the customers as it should be considered; the competitors have benefited on such type of strategy of Marks & Spencer. And this fact can be understood by its slow financial growth. Technological Technology is unavoidable. Its impacts and uses are indelible. In the recent history, online buying and selling have added a new feature in the corporate world. As a result, organisations have to ensure their physical existence as well as virtual one to effectively remain competitive in the local and global market. Marks & Spencer has virtualised its existence. It has launched its website for the purpose of sale of its different products. Additionally, Face book, Twitter and certain other social marketing sites have also experienced the presence of the commercial activities of Marks & Spencer in the recent history. The SWOT analysis Strengths Physical and non-physical resources Marks & Spencer owns the wide range of resources (Thompson et al., 2010). Besides owning popular brand products in the clothing industry, Marks & Spencer enjoys reputation and image of quality with reliability and durability. Food quality Marks & Spencer enjoys her name in the food industry. Customers share their loyalty with their frequent visits for fresh vegetables, fruit, and other food items available at stores of (Ciao, 2002). Innovation Many authors do not doubt the use of innovation by Marks & Spencer in its products and services. Peter Drucker (1985) after studying the use of innovation commented that M&S was more entrepreneurial and innovative than any other company in Western Europe. Supply chain A considerable improvement has been introduced in wider range of products. Enjoyed faster lead times, M&S have consolidated its warehouses and a number of efficiency projects. It has converted its 110 smaller warehouses to a smaller number of super warehouses, basing them in the prime location with a strong link with e-commerce distribution centre in the Midlands. Simplification Stock handling and a floor layout of warehouses have been simplified, reducing the number of stock handling; diminishing picking times and taking more products on trucks. Weaknesses M&S looks more women-oriented rather than men. In the clothing segment, M&S sells most of its products for ladies outerwear-Lingerie, footwear, and other items. Jobber (2001) argues that M&S has completely ignored the male young consumers. Due to this type of marketing strategy, most of the men prefer purchasing the products such as Next, Gap and Top shop. Stock management Technology and delivery system did not co-ordinately work in the required way. After virtualisation its existence on the land of the Internet, M&S tried to use this combination. However, the combination did not serve as the virtualisation experience was new for M&S. Most of the time, online buying was made and when the time came for the delivery, the customers were told that the items were out of stock (Jobber, 2001) UK orientation Despite celebrating more than 125 years in the corporate world, M&S is still known to be a UK entity rather than a multi-national company. Its UK revenue for the year of 2009/10 is 8,567.9 billion pounds out of 9,536.6 billion pounds-which is more than 89% of the total group revenue (M&S, 2010). The same are depicted in the other financial data. This seems to be a strategic weakness and has been continuing. Opportunities Increased consumer confidence The recent economic downturn has ended. And this has renewed the consumer confidence over the economy locally and globally as well. As a result, M&S can use this boom in the UK economy and in the global economy as well. Virtualisation The Internet has changed the world. A considerable number of consumers locally and globally prefer to buy from their comfort of home rather than going towards stores and marts. This has pushed the e-buying activity. China factor Globally, china is emerging with a huge potential of consumer market. And this new emerging market can be utilised by investing and operating in China in food and clothing industry. Threats Competitors As 90% of the revenue and the profit after tax come from the UK market, M&S faces real threats locally rather than internationally. Where competitors such as Gap, Topshop and Next provide a competitive environment in clothing segment. Ever changing customer needs The clothing industry does not remain the same. The element of change constantly realises its presence in style, look, design, size, choice, colour and cost. This can severely hit the revenues of any company doing business in it. For example, if a company has heavily invested into a purchase of raw material of red colour dresses with a particular design and size. Within a few days, the fashion has changed to green colour dresses looks more in demand than the red one. The entire investment could bring a severe loss for the company. In the light of the recent economic downturn and the problems in the economy recommend a set of strategies for your chosen company from 2011 - 2015 justifying the recommendations made (suggest several strategies then choose two of these to evaluate using S, F, A criteria). Using Strengths to availing Opportunities (SO) M&S has a long corporate history. It has earned its name in clothing and food industry simultaneously. Both industries do not observe much change rather a slight modification locally and internationally as well. As far as the clothing segment is concerned, M&S can use its brand name and quality to different parts of the world such as China which is a fast growing economy, having a sufficient consumer base and potentially lucrative investment destination. As M&S is renowned and known for its quality products in clothing industry, there would be more chances for her to gain prompt entry and recognition in China and other untouched investment destinations. Additionally, The Chinese market offers less expensive labour and investment friendly environment are those factors that can really change the current slow international financial growth of M&S into a mega portion growth. Taking Opportunities and overcoming Weaknesses (OW) The financial crisis has ended. This end brings new hopes and expectations in local and international market growth and development. Furthermore, the consumer confidence in UK and around the globe is increasing due to the availability of disposable income. The consumers more prefer to expend rather than saving. This opportunity can be translated by giving more focus on the clothing fashion of men, which has been considerably ignored or underinvested and much focus has been given to women and its clothing items. This can bring more profits for the company. However, the competition can be fierce as the competitor such as Gap, Next have already penetrated this market with their competitive prices. Using Strengths and avoiding Threats (ST) M&S is also known for the use of innovation. Among its distinct features, M&S has considerably used innovative means to introduce and serve the ever changing desires and needs of the consumers in food and clothing industry. As the customer choices cannot remain stable in the clothing industry, this single threat can negatively impact on the revenues of M&S, it would be highly appropriate to use innovative means to constantly monitoring the ever changing clothing needs. This strength can considerably be helpful in reducing the challenges of the fashion industry. Minimising Weaknesses and avoiding Threats (WT) The competitors cannot be wished away. They will constantly be posing a severe threat. However, by improving stock management, which is currently being done by M&S, could save the company’s considerable cost. Additionally, the only way to minimise the weakness of less focused on men clothing is to equally invest in the clothing requirements of men and women. This would not only reduce the impacts of weaknesses but also avoid the threats posed by competitors. Suitability, Feasibility and Acceptability criteria Suitability is determined by considering certain facts. Such as the strategic position of a company, surrounding circumstances in which the company is operating. On the other hand, acceptability takes into account the expectations of the shareholders and stakeholders besides expecting certain financial performance indicators. The best financial performance indicator can be Earnings Per Share (EPS) that shareholders always prefer to see and want it to increase. EPS represents the portion of a company’s earnings allocated to each share of common share (Investing answers, 2011). Additionally, EPS is defined as a measure of the shareholders’ earnings (Pandey, 2006). In the year 2009, M&S provided basic EPS of 32.3pence and 33.5pence in 2010; a modest growth and less expectation from the shareholders can be identified from the figures of basic EPS. But, feasibility talks about a practical application of a strategy. Its practicality is analysed before going to implement while taking into account the strategic capability into account. And, the following financial calculations further highlight the existing financial position in comparison with the previous year. 2010 2009 Note Gross Profit (GP/R*100%) 01 37.94% 37.21% Operating Profit (OP/R*100%) 02 8.93% 9.6% Profit Before Tax (PBT/R*100%) 03 7.37% 7.79% Profit After Tax (PAT/R*100%) 04 5.48% 5.58% The gross profit figure has registered a modest growth in 2010. The growth of 0.37% (37.94%-37.21%). Even, it would be better to say the group has provided un-attractive growth in the gross profit. Surprisingly, the group has failed to outgrowth the operating profit in 2010 from the operating profit ratio of 2009. Instead of increasing, the ratio of operating profit has experienced decline of 0.67% (9.6%-8.93), highlighting a substantial increase in the operating expenses in the year of 2010. Additionally, the same description is highlighted by the ratio of profit before tax, declining 0.42% (7.79%-7.37%). Much worrying sign is being represented by the ratio of profit after tax, which has also registered a decrease instead of increase, the aggregate reduction in the 0.10% (5.58%-5.48%). Aggregately, except the figure of gross profit in the year 2010, the remaining financial ratios have provided a declining financial performance of Marks & Spencer in the year of 2010. As a result, the company’s practical strategy is proved to be insufficient to outshine the financial performance of 2009, highlighting significant weaknesses in the corporate strategy. Using Strengths and availing Opportunities (SO) This option fulfils the requirements of the criteria. Currently, M&S has a strategic position by operating in more than 40 countries. It is capable of increasing business and profit in China. For that purpose, it has already established the brand name and image of clothing industry locally and globally, besides it is also known for its quality food products with the aid of innovation. The shareholders currently are losing much of expectation from the current financial position of the company; this can be displayed from the latest Earnings per share (EPS), which is 33.0p in 2009/10; 28.0p in 2008/09; 2007/08 in 43.6p. This trend in EPS looks unstable, showing the real apprehensions being mentioned by the shareholders. As far as the strategic capability of M&S is concerned, it is sufficiently equipped to go for that option. Taking Opportunities and overcoming Weaknesses (OW) Attempts can be made to practically realise M&S presence globally. At this point of time, M&S looks a UK entity despite operating more than 40 countries. Shareholders may not resent when they hear M&S has successfully increased its revenue share from its international portion. Additionally, many shareholders also do not disagree that it is the over-significance of UK portion that is casting shadow on the international portion in terms of revenue and profits. Additionally, a marginal increase in revenue and profit figures does not show a financially healthy sign for the future of the company. For that, M&S must put more focus on the international operations, which is not only acceptable, feasible, but also suitable for M&S. Recommendations More focus must be given to the international portion as it has more capability to increase the revenue and profit figures. Also, in the clothing segment, menswear must be given considerable and equal focus, and this segment must be invested for the purpose of increase in sale. Furthermore, UK orientation seems to be a main cause of less attractive financial position. As a result, M&S must pursue other lucrative investment destinations and emerging markets. China and India seem to be leading such markets. For M&S, joint ventures may be acceptable as these markets are culturally strong. The local representation with joint ventures may serve more than other options. Additionally, food and clothing industry in such parts of world have more culture influence and there are less chances of change in both industries in these parts of the world. References 1. Ciao, 2002, ‘Mediocre & Spensive’, [Available at: http://www.ciao.co.uk/Marks_and_Spencer__Review_5379901] [Accessed on: 22 April, 2011]. 2. Drucker, PF (1985) Innovation and Entrepreneurship, Heinemann. 3. Jobber, D (2001), ‘Principles & Practice of Marketing’, (3rded). London: McGraw-Hill, p148-150. 4. Thompson, J., Martin, F (2010), ‘Strategic Management: Awareness & Chance’, UK, Thomas Rennie. 5. Annual Report, 2010’ Marks & Spencer, [Available at: http://annualreport.marksandspencer.com/ ] 6. Pandey, I., 1995. Finance : a management guide for managing company funds and profits, New Delhi: Prentice-Hall of India. 7. Definition of Earnings Per Share (EPS), 2011, [Available at: http://www.investinganswers.com/term/earnings-share-eps-1003] [Accessed on 30 April, 2011] Bibliography Financial Ratios of Marks & Spencer For the year 2010 2010 2009 Note £m £m Gross Profit 01 (3618.5/9536.6*100%)= 37.94% (3,371.9/9062.1*100%)= 37.21% Operating Profit 02 (852/9536.6*100%)= 8.93% (870.7/9062.1*100%)= 9.6% Profit Before Tax 03 (702.7/9536.6*100%)= 7.37% (706.2/9062.1*100%)= 7.79% Profit After Tax 04 (523/9536.6*100%)= 5.48% (506/9062.1*100%)= 5.58% Read More