Outlook for Marks & Spencer Company - Essay Example

Outlook Report for M&S (Marks & Spencer) Inserts His/Her Inserts Grade Inserts InsertsDate Here (05/01/2009) Overview of the Company (Marks & Spencer): M&S are one of the UK's leading retailers and has around 21 million people visiting its store every week. It offers high quality, stylish clothes and home products, while also selling foods. It has more than 620 stores in UK and nearly 280 stores across the world (www.marksandspencer.com). It also claims to be the number one provider of womenswear and lingerie in the UK, and now is targeting to grow their market share in menswear, kidswear and home products, through their web-based online trade portal. The clothing and homeware sales portion accounts for about 49% of their businesses while the remaining 51% comes from food business, where they sell a wide range of products. They are also planning to open up eco-friendly stores for their green credentials. SWOT Analysis Strategic planning process comprises of an important ingredient of external environmental analysis. Environmental analysis helps ascertain the state of factors internal to the firm which can further be classified as a firm's Strength or Weakness while those external to the firm can be classified as Opportunities and threats. This study of the strategic environment is called SWOT analysis. SWOT analysis facilitates the extraction of strategic information which aids in matching a firm's resources to the environment in which it operates. Strengths: 1) Acceleration of store renewal programme-M&S have already started investing in their stores and completed about 70% of their modernization programme. They are planning to modernise an additional 10% of space and open up an additional 5.5% of new space in the coming years. With launch of new eco-friendly store, they will be able to cut the down the cost tremendously in the next 5 years. Within one year, they are able to save around 20% of their energy in the store. 2) Private labeled grocery- M&S sells 90% of its own food brands. Despite M&S experiencing difficult trading conditions in their clothing departments, their food halls have continued to run successful business. It consistently offers innovative, high quality and rigorously checked food. 3) Everyday value shop with quality- Making Marks & Spencer a more convenient place to shop, the popular shopping basket items have reviewed prices without comprising with the qualities of the product. Although the company is working according to market price but without hampering their quality and standards. 4) Variety of food products at one stop shop- Marks & Spencer's ready to eat meals are long been famous for their great ingredients. As more of consumer start spending their time in kitchens and would be spending in the next 5 -10 years, they come with new range of 300 ingredients right starting from fresh herbs to bread and cakes-makes easier cooking starting from scratch. 5) Expansion of stores and intensive use of space: Currently in UK, there are 622 stores and 278 international stores all over the world. With the possibility of resurging economy after 2 -3 years, they will be planning to expand their stores in UK as well as globally also. This makes their presence in UK stronger than any other brand. With the current downturn in the economy, they have already started utilizing the floor space for every square foot to its full potential. Selling space will be reallocated to higher growth product areas to maximize returns per square foot. Weakness: 1) Late entrant: With the increasing disposable income of the people and increasing awareness of the people about the healthy and dietary food, Marks & Spencer became a late entrant into this segment. Even talking about the experience of the store and one stop food shop, they had just entered into this segment. This becomes disadvantage for them as last mover. 2) Strong presence in UK- It has strong presence only in UK. It has 622 stores in UK and 278 stores internationally, which contributes only 8.5% of the total retail revenue. The UK market is also become stagnant and M&S look for other potential market in the world. 3) Low penetration in the food segment- There are a lot of organized big and small players in the UK food retail market and M&S constitutes only 4.3% of the market as compared to big organized retail chains. With opening up of new retail stores and providing customer a value added service, M&S can increase its market share significantly. Opportunities: 1) Increased awareness among the customers- The increasing trend for fresh and healthy key ingredients for cooking from scratch or quality products that make them to assemble a fresh meal, have increased the opportunity to explore this segment magnificently. The increasing awareness about the food sourcing and animal welfare issues, has encouraged them to look for the products that are free range and organic. 2) Exploring new food segment- Sea food, once upon a time was the famous food for the Britons. British waters provide a range of wonderful sea food to eat and with the rebranding exercise, the once unpopular pilchards become summertime favorite. In doing this, M&S can create a viable industry using a sustainable and underutilized catch. 3) Online shopping- With the increasing busy schedules and safe internet shopping facilities, more and more customers want to order their goods online. M&S direct website is new launch towards online shopping. It helped to increase 63% of sales. So there is a lot of opportunity to grow with the online shopping and provide wide of range of the products. Online shopping, as a proportion of total retail sales, is close to 7% in the UK. Between 2002 and 2005,sales increased by 1500% and IMRG forecasts that by 2012 online sales will increase by another 320% and will represent almost 20% of all retail sales.( www.prospects.ac.uk) 4) International Expansion: M&S has very strong portfolio in the UK market. Now there is a lot of opportunity in the international market to get known. They have increased their franchise operation and also have strategic partnerships in some of the world's most dynamic economies. India, which is the most significant destination of any retailer, is also having franchise model of M&S and looking forward to open up 30-35 stores in next 5 years. 5) Mergers and demergers- As with other sectors and industries, the food retail market has a high degree of consolidation, with a small number of companies growing in size to gain increasing shares of the market. A change in the ownership of firms is a regular feature in the retail sector and rumors constantly abound of mergers and acquisitions. These smaller businesses have been closing at accelerating rates over the past few decades, causing a government group to speculate in January 2006 that by 2015 there may be barely any independent small shops left at all. For big brands like M&S, this may advantage like in cost cutting, increase number of outlets, being close to consumer and working on the strengths of the company. But there are some disadvantages associated with these consolidation like brand dilution, decrease in brand equity, increase in the cost etc. so proper research should be done about the company before acquiring it. Threats: 1) Competition: In the last decade, the UK consumer's appetite has grown for healthy, convenient and ethnic foods. There is increasing demand for ready to eat meals and presence of a lot of big and small players has increased the competition. There is close run for good quality, innovative and value given to the customers by the various retailers. 2) Economic Recession: The economic recession brings down the sales and decrease in footfalls in the retail stores. The disposable income of the people start decreasing as there is lots of job cuts in the various industries. But this downturn in the economy will soon fall in the coming one or one and half year and this retail sector will start booming in the next 5- 10 years. But there will be some aftermath affects of the economic recession which will further affect the growth plan of the retailers. 3) Importing Cost- Importers are key to doing food business in UK and plays a important role in navigating the hurdles of UK/EU food law. It is not possible to supply UK retailers direct. The importing cost costs a lot as it included the full brokerage rate of 17-25% and marketing cost from FOB level to retail like freight charges, taxes, insurance cost and custom duty etc.. so its really hard to export food products to UK as it involves a lot of cost. PESTLE Analysis The PESTLE analysis is an analysis of the external macro environment in which a business operates. These factors at most of the times are not in control of the business but the business needs to be aware of them while taking decisions like product development, business or strategy planning. This is often clubbed with a SWOT analysis to get a more holistic and inclusive view. PESTLE is an acronym for Political, Economic, Social, Technological, Legal and Environmental factors, which are used to assess the market for a business or organizational unit strategic plan (www.rapidbi.com, 2009). Political: 1) Planning policy- There is consent about the out of town retail development, particularly for food stores. There should be proper policy in the line for development of retail store outside the town or even for the factory outlet. 2) Lack of pollution control policy-While food prices continue to hot headlines, the government is looking at the environmental impact of food production. The food policy should address the related issues of environmental impact, pricing and public health in a joined-up way. With the growing awareness among the public and food policy issues, the government is paying more attention towards the proper food policy in the mechanism. 3) Business Regulation- There should be proper import policy in the mechanism as the specialty imported goods like food items are charged heavily first by broker then hit by marketing activities starting from FOB to retail store. Economic: 1) Inflationary pressure: With the increasing inflation, the food market is held up. Economic conditions have weakened the confidence of consumer, as household budgets come under pressure from increases in energy, transport and housing costs, the food and grocery market is relatively resilient and growth opportunities remain both at the value and premium ends of the market. Key note forecasts that the UK retail market will grow roughly in line with inflation over the next 5-7 years.(www.timesonline.com) 2) Government policies- In order to control the rising inflation, government should announce a relief package to monitor the credit crunch in the industry. Cut in interest rate will help retailer to borrow at less prices and this will reduce the cost of food products, which they are passing on to the consumers. Social: 1) Consumer buying behavior- Consumer buying usually changes with their demands, with product knowledge as well as with the disposable income, they have earned. So it is very essential for any retailer to learn about the consumer behaviour and their buying patterns. Nowadays consumer is getting more health conscious and wants more nutrious and dietary food. M&S should concentrate on the buying patterns and consumer behaviour. They must open up more and more variants in health food sector. 2) Being Close to consumer- Population estimates for the UK suggest that there will be increase in population by 4 million in the UK. Population estimates for the UK suggest that there will be in the next twenty years an extra 4 million people in the country on the current base of 58 million. Retailing and shopping heavily dependent on people, both as an industry, but also as the basic consuming unit. Changes in the population structure and the location of people as well as their consuming behavior are fundamentally important to retailers and to understand the shopping future. 3) Demography- retailing is a traditional user of young people and the workforce required is more youthful and transient than many other sectors. The ageing of the population has another dimension of interest to retailers and with declining youth population in coming 5-10 years, there will be large increase in older consumers. At that time retailers have to question their hiring policies because older consumers like to be served by well informed staff and retailers have to hire older staff for them. Expectations and willingness to work by this group will get changed by that time.( Huxley Ruth,2003) Technology: 1) Shopping process change- The process of shopping is changed from in-personal shopping to online shopping. There are various avenues for shopping like Amazon, company's website but for most of the fresh food related items people like to purchase in person but for the most of the packed foods they would like to prefer online shopping. The current implementation of e-retailing has the scope to change the nature and cost structures of retail activities. It is time saving and cost saving activity. M&S should focus more on new and innovative way to use the internet technology in the best possible. 2) Business process change- A proper technology should be used to ensure timely and perishable food items to consumers like RFID tags which are currently used in retail sector in place of bar code. These tags can be used right from the producer end to retailer end. This type of business solutions help to make business process much easier, sophisticated and less time consuming. The retail food industry has the technological, product development and marketing skills to respond to continuing demand for food quality, convenience and value- as well introducing newer trends such as healthier foods. Legal: 1) Proper legislation in place- Government with food industry support, takes sufficient evidence to make science based decisions on potentially emotive issues such as carbon labeling and packaging. The need for a single standard for the measurement of a product's carbon footprint. There should be proper legislative in place for stopping the carbon footprint pollution. Environment- 1) Quality of environment- Due to economic downturn, there is a major issue arises in the cost cutting of the retail store- the store space. There should be potential use of the floor space by the retailer. M & S has already started utilizing its floor space potentially. 2) Energy use- The main heart of food industry is fresh food and this can be maintained through proper supply chains, with the proper use of energy. There should be properly regulated cold storage chain for carrying food products. Proper use of energy in the store for cold storage as well as for store lighting and store environment. At the store level, much is being done to ensure efficient use, but as large users of energy for lighting and heating, retailers are always going to have cost concerns. Conclusion Although it can't be exactly predicted how severe the current downturn will be or how long going to last, but M & S can expect its impact to be felt into 2009/10. Though in the coming 5-10 years there is a strong growth potential in the UK market as well as in international market. Since population is increasing in the UK and after this economic downturn, there might be possibility of increase of job opportunities, disposable income; change in consumer buying behaviour which will lead to increase in food buying behaviour. There should be also proper legal and government policies to ensure ethical business in this sector. There is also a lot o outcry on environment issues also. It should be taken care by opening up of more and more eco friendly stores by M&S. Lastly talking about next 5-10 years in food retail sector, the key values on which M&S should work upon are; quality, value, service, innovation and trust. References Annual report-2008 - Marks & Spencer Pg (19-21) Retrieved from About us-Marks & Spencer- Retrieved from Burt Steve (2003), Department of Trade and Industry Competitive Analysis of the Retail sector in the UK- Pg no 19-21 Huxley Ruth, (2003), A Review of the UK food market: Consumption and Expenditure-Pg no 7-8 Nicholson, Julie Vasquez (2008), Retail food sector UK market brief-Pg 3-8 Food prices send retail inflation to new high (2008), Retrieved from Rapidbi Website (2009), The PEST or PESTLE Analysis, Retrieved from: < http://www.rapidbi.com/created/the-PESTLE-analysis-tool.html > Retail Market overview (2008), Retrieved from Retail Overview, Retrieved from Read More