Marks & Spencer as a Well-Known Name in the Retail World - Case Study Example

Marks and Spencer Company overview Marks & Spencer is a well-known in the retail world. It was a high street retail chain that came into being in 1894 and became a listed company in 1926. Marks and Spencer is one of the largest retailers in the United Kingdom, and has a hard earned reputation of being extremely qualitative as far as its products are concerned. Customer confidence in the Marks and Spencer brand remains second to none. According to recent research undertaken by the Company, it shows that, in clothing, Mark and Spencer has a clear lead over all its major competitors in the key areas of fit, quality, trust, breadth of range and customer service. The group's merchandise includes clothes, household goods and food sales, with their clothing line contributing half the revenues. It has also diversified into financial services that include accounts cards, pensions, loans, and life assurance and contributes about 5% of its total revenues. Marks and Spencer divides its operation as UK retail, International retail and financial services. The UK Retail division is its major chunk of the business and contributes the most to the turnover. It sells Women's wear, Men's wear, Lingerie, Children's wear, Beauty products, Household goods, and groceries. The International Retail business prevailed from Europe to North America to the Far East a well. The Financial services division offers personal insurance, personal loans and store cards. Corporate performance Until the late 1990's Marks & Spencer was largely successful and Marks & Spencer recorded highest profit growth in the years, 1997 and 1998. In 2000, Marks and Spencer launched lingerie outlets in Paris, Hamburg and Dusseldorf that met with considerable success. It is a leading seller of lingerie in the UK with a 20% market share. It introduced the "Per Una" clothing range designed by George Davies in 2001 that was received moderately well. However, strong competition from other retailers was a big problem for Marks and Spencer. Marks and Spencer had built its business by ensuring customers that the high quality of its products, warranted the higher price paid by the consumer. Its business model was to maintain UK sourcing for its products. Consequently when competitive retailers sourced from low cost Asian suppliers, Marks & Spencer found its core business model a great liability. Its margins would not let it keep up. Ultimately, when it had to be done, the strategy came a little too late. It also lost its appeal to the consumers. Product quality deteriorated and customer dissatisfaction caused it to lose a lot of its base. Its target segment was traditionally women aged 35 and above. However, statistically, the younger generation invest in fashions and styles than the target segment it was aiming at. Therefore Marks & Spencer also lost valuable potential target base in its marketing efforts. Its image as a mid priced company for the middle-aged segment drove these younger consumers to the rival high street retail fashion boutiques offering great discounts. The company did attempt measures like revamping the business model and opening the stores on Sundays, but the results were not good enough. Internal management issues It had serious internal issues and this instability led to low profit margins and loss of customer satisfaction. Sir Richard Greenbury who headed the company has often been blamed for the debacle. The style of management was supposed to be autocratic and feedback from the employees was not encouraged. The lack of input from the actual employees who were in touch with the consumers on a daily basis was a great disadvantage. There was no transparency in communication and therefore Marks & Spencer had no finger on the customer's pulse. It lost valuable information that should have driven its strategy. Managers had no decision making power and were unable to implement even small changes without top management approval. The top management had no perception of the external environments in which the stores operated and was complacent to the growing changes and customer expectations. The employees were not expected to shoulder responsibility, did not feel involved and lower morale led to lower productivity. Greenbury also made a poor investment decision in purchasing the Littlewood chain and added to the financial problems. Marks and Spencer failed to respond quickly to the changing dynamics of the retailing environment and when it did respond it was disadvantaged hugely. The profits slumped and the company's share price fell by more than two thirds, and its profits fell from more than a billion pounds in 1997 and 1998 to 145 million in the year ended 31 March 2001. He was followed by succeeded by Salsbury who understood the problems and paved the way for the dramatic reforms initiated by Vandevelde. His better understanding allowed the company to decentralize its operations, switch to Asian suppliers and receive valuable feedback from the employees. Strategic Planning In 2001,Vandevelde strategic planning was multi faceted. The first decision was to concentrate in the local market. The International franchises were losing money and controlling them was difficult. In 2001, Marks & Spencer closed down its European stores in an attempt to improve its profitability and streamline the company. It also sold off the US-based Brooks Brothers clothing chain that it had bought some years earlier. The company returned to focussed selling of its own brand and sourced Asian suppliers to cut costs and offer competitive prices to the customers. Supply chains were evaluated and better working relationships with the partners offered better efficiencies. Employee feedback was revived; morale improved and customer service was greatly enhanced. Marks & Spencer is strong in the foods market though, and registered consistent performance in customer satisfaction and quality. It has nearly half of the market share in ready-to-eat meals market, and 25% market share for salads, sandwiches, etc. The franchised Simply Food stores that were basically functioning as top-up stores for its customers, were halted in their expansion further to get back on track again. US Kings Super markets were disposed off too, halting further international expansion in the foods market. By 2003, Marks & Spencer rebounded and had recovered its financial health. Sales increased and the company had increased its market share. Most of this growth was by catering to their traditional target customers in the 30-50 years age group, both men and (Source: http://www.aqa.org.uk/qual/gcse/qp-ms/AQA-3132-P-PM-Jun05.pdf) women. They had also benefited from the extended stylish line by George Davies for the premium consumer. In 2004, Marks & Spencer was in the midst of an attempted by Arcadia Group boss, Philip Green. On July 12 a recovery plan was announced which would involve selling off the financial services business to HSBC Bank plc, buying control of the Per Una range, stopping the expansion of its Simply Food line of stores. However, the takeover fizzled out due to the lack of sufficient backing from shareholders. Market analysis The clothing market is a very competitive and varied from low cost casual wear to high fashion clothes and trendy boutiques. With the advent of sourcing to low cost of suppliers and technological advances that has led to improved efficiencies in better machinery, the number of players has phenomenally increased especially with the supermarkets joining the fray, and therefore the margins in this industry are moderate. The clothing retailers may sell their own brand, or sell sourced from others or may be just smaller independent operators. Most of the turnover is often in the mid-priced segment. But recessive economies do prompt people to cut down on purchases. The advantage of the food market is that even in a recession while people cut out on the luxuries, food always remains a basic necessity. Supermarkets are sustained by their food sales that keep growing every year. Non-essential food items have been garnering sales as well in the supermarkets. With more people opting for frozen ready to eat meals as well as prepared meals on the go, these sectors have been doing well too. Marks & Spencer's core business is aligned to both of the above markets and overall mixed goods market is both mature, saturated and margins are moderate. Acquiring and maintaining market share is difficult and has to be constantly monitored and energetically kept varied and updated to respond to changing dynamics. Competitor analysis Marks & Spencer has strong contenders, in the food and clothing business that is its core segment. Its competitors in the food industry include Tesco, Asda, Sainsbury, and Waitrose etc. and in the clothing segment, BHS and Debenham compete in the traditional sector and chains like Gap and Next plc in the younger consumer segment. Tesco is a formidable opponent. With profits of over 2billion on turnover of 34billion in 2005, and a huge market share, it is a strong rival. Starting out as a food store, it has grown into a massive supermarket chain and the brand has a wide reach and has its share in the clothing, gardening, finance, legal services and the gas industry. It strength is tat it caters to all areas of the target segment and does not overlook any. However already having expanded efficiently as much, its scope to expand further is now limited. Tesco is a brand that is hugely identifiable by the masses. Asda is the second largest UK supermarket with a 10.7% market share according to TNS. Asda is more tuned towards the price conscious customer. Therefore its brand is perceived as an economy brand and when quality matters more than the price, Asda is not able to compete with the premium brands. Sainsbury is well established and has been catering to the public from 1869 and has a valuable brand value in their eyes. It is a more premium brand and has an upmarket um clientele that places value on quality. It has had its share of troubles but has the range to quickly scale and grow stronger once its back on track since it has a an established base which allows higher margins due its perception as an elite brand. Waitrose is a relatively smaller player but since it is concentrated in few areas, it has the highest range for expansion. It is also in the premium segment and has plans to venture into the gardening, home furnishings and DIY market. If it uses its potential judiciously it has a good potential for growth and more sectors to expand into. In the clothing scene, Next Plc operates in the same target segment and is into household and home dcor as well as finance. Therefore the similarity of operating sectors makes it a direct competitor to Marks & Spencer. It also does mail order and has overseas operations. Debenhams on its website claims to be Britain's Favourite department store group, with a 18.6 % market share with 120 stores in the UK and Republic of Ireland. Debenhams has continued to develop a unique mix of exclusive own brands including 'Designers at Debenhams', international brands and concessions. British Home Stores has been operation since 1928 and became a public entity in 1931 and started offering quality-oriented values from 1945. BHS is the well-respected high street retailer that offers something for all the family, and perceived to offer great value for money. International chains like Gap penetrate any global market with ease due to the prevalent globalisation and Internet explosion. Today, Gap Inc. is one of the world's largest specialty retailers, with more than 3,000 stores and fiscal 2005 revenues of $16 billion. Their name has become synonymous with fashionable and trendy clothing and is recognized widely for brands like Gap, Banana Republic and Old Navy. In summary, the amplified competition due to the increase in the number of players, both competitors in food sector alone or in clothing as well, instils a need to keep the prices competitive, keep the innovation going and create promotions and sales to increase sales. The buyer is highly powered by his purchasing power and myriad options. New entrants bring the added pressure of increased supply to existing demand. The threat of substitution is always high because of changing needs of the consumers who may be attracted to a newer product or food item that is available instead of the one they are looking for. Therefore, firms will constantly be in absolute earnest to outsell each other using any lucrative means as possible. PEST Analysis Political: The political government is stable conditions are stable and there are no major legislations that affect the operational capabilities. Environmental concerns are increasing and these may bring legislations that may enforce stricter control that may affect the stores in the long term. Advent of other legislations like minimum wage changes, labelling, licensing etc. may affect operation in the long term. Economical: The European Union and the Euro may contribute to better purchasing power without currency conversion issues especially online. A major economic downturn or recession will discourage consumers from purchases especially clothing and luxury items that will impact the bottom line. Increasing oil barrel costs that triggers gas price increases will increase transportation and utility costs impact the cost structure. Social: Social causes would include increased mobility of the people who are now willing to travel more to realize a bargain. The people have more choices now and therefore customer loyalty is no longer a guaranteed entity. Wider geographical areas dedicated to shopping add pressure to the storeowner to bring the customer in to make a purchase. More disposable incomes and increase in leisure time has allowed the customer to shop in multiple locations before making a purchase. At the same time, more income allows more premium brands and higher end of the market to benefit. Technological: Technology in the form of increased efficiencies, in machinery, better supply chain logistics and Internet online shopping has brought in rapid changes. The Internet explosion has made people more aware of trends and styles available worldwide and free shipping and online shopping has widened the shopping arena across geographical boundaries. Hence, this may be a concern for the Marks & Spencer if they lose customers to online sites. Innovation of newer clothing materials may trigger a need so that customers patronise a store that introduces it first. SWOT analysis Strengths: Marks & Spencer's greatest strength is the goodwill it has built painstakingly over the year for its quality products. The company has worked hard to rebound from losing market share in 1990s, and has earned its image once again. It has good relationship with its traditional target customers and has now completely tuned in to their needs. It maintains an efficient supply chain and is on good terms with its suppliers. However its does not compromise on quality and insists tat they have ISO 9000 certification. It has a wide range of products and fresh produces for which it's well known. It sells its own clothing brand that gives it better control over quality and price. It has enormously improved customer service by motivating employees. Weakness: Its main weakness will be the contained target segment. It needs to focus on a wider range of customers to increase sales and figure out a way to bring younger consumers to the store. It has a bureaucratic and mature image of the store that deters other audience. It scope for expansion is not much since it has already extended itself to a vast degree. It has a track record of not responding to changes quickly enough, and it needs to take care that it does not do that in the constantly evolving clothing market. It uses visible advertising only sparingly and needs to revamp its image projection to the public from "old fashioned" to "highly current and trendy". Opportunities: Ecommerce may be the next best thing happening. It can look to do mail order shopping which is favoured a great deal by consumers hard pressed for time. Many companies worldwide are opting for brick and click serve where you can shop online and pickup at store saving time. It can also home deliver groceries at a nominal cost. Threats: Threats would include the high number of existing and new entrants as competitors who could range from low-end chains to global players. Aggressive cost cutting or loss leaders initiated by them may spell disaster for the company. Stock price falling would result in loss of faith in the company by stakeholders and customers and it has to be monitored. Conclusion and Recommendations Marks & Spencer operates in a highly competitive environment. It needs to be constantly aware and evolve with the times. In its business model, competitive pricing, quality control and products that cater to current needs will be the way to go. Having decentralized its management it needs to keep close tabs on its operational processes. Taking care of its employees well, for which Marks & Spencer is well known is critical. Sourcing suppliers who add cost benefits without compromising on quality will aid in keeping the costs low. The stores should be airy, bright and clutter-free with broad aisles and piped gentle music, which makes shopping a pleasure. Rewarding repeat customers or high value purchases with discounts and points may be enhanced and given spa vouchers and salon vouchers to buy customer loyalty. Online customers should be treated similarly since the overheads associated with an online purchase are way lesser than with a physical purchase. Therefore to accrue these benefits, online shopping must be promoted as well just like in the airline industry. Highly visible advertising campaigns proclaiming sales and promotions, linking young celebrities purchasing at Marks & Spencer will help rejuvenate its tired image to a trendy one. This will also lure the younger segment to its stores. At the same time it should take care to keep its current segment in place by targeted advertising. With so many stores competing differentiation is the key. It can add ambience to its stores and improve the shopping experience. Having a supervised "kids korner" while the mother shops will bring the shoppers in and leave them to shop peacefully and buy more. Having " free make-up corners" for the younger customers who buy a stipulated amount of clothing, or " design consultants" that help them put an outfit together will be a welcome change. A lounge with a TV for reluctant men shoppers wanting a rest will add to the ambience. Overall, Marks& Spencer has been through the ups and downs and survived. As long as it plans ahead and moves with the times, it can continue to be successful in spite of the potential threats in the market. 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