PESTLE Analysis for John Lewis and Marks and Spencer - Essay Example

PESTLE Analysis Political: Changes by the Government to the land use planning systems affecting the development of retail outlets and activity at existing outlets During the 1980’s land use allowed for decentralized activity, however in recent decades, there has been a restriction placed on off centre development as well as those developments that affect existing green cover, as a result Marks and Spencer has faced difficulties in opening new outlets. The recent closure and restructuring of Mark and Spencer outlets in France has provoked controversy about worker rights, in terms of consultation and retraining.(www.euractiv.com) and the European Commission is formulating new laws in this regard. Government has been regulating trade conditions in the interest of customers and also regulating employment practices which are affecting the manner of functioning of the Marks and Spencer outlets. There is also a higher level of political scrutiny over food retail outlets because it is the second largest employer in the UK; with public health assuming a more important focus, there has been a tighter regulation of food stores for this Company. Economic Transition from the traditional supply chain management system to a system of vendor managed inventory, which in conjunction with a tailor made forecasting package, has produced gains for Marks and Spencer and made it one of the most profitable and efficient retailers. (Storey et al, 2003). The Company rarely needs to sell its products at discounts because the supply side is well managed. The percentage of revenues accruing from international sales has increased to 7.1% of group turnover.(2007 Annual report), however maintaining this is a challenge in the face of increased competition in the European Common Market, the development of the common currency – the Euro and changes in VAT Marks and Spencer started off primarily as a clothes retailer; however it has now expanded into food and home products to compete effectively in the global market. British retail competitors of Marks and Spencer are also large corporate chains, which may have their headquarters outside the country, hence outsourcing activities and knowledge management becomes a key element affecting operating as well as long term profitability. High levels of credit in the economy and the increasing concerns in global circles about the credit market may also be affecting the Company. Social: Marks and Spencer staff have mostly been recruited young and continued within the organization for many years; as a result, there are some set procedures and routines in operating which have become integral to the staff and has produced resistance among employees to changes within the organization.(Mellahi et al, 2002) Changing customer trends in fashion as well as fierce competition from other retailers makes it a challenge for the company to sustain profits. Changes in lifestyles have made customers more health conscious leading to changes in the market for genetically modified foods Customers are also more environmentally and socially conscious and reject products made from sweatshop labor, or products that are environmentally unsafe. (annual report, 2007) Changing lifestyles have generated corresponding changes in the kinds of products purchased, for example customers may prefer microwaveable products. Customer behavior is constantly changing and since such changes are not necessarily rational, it is hard for retailers to understand and modify selling patterns to suit. Changing demographic trends and changing composition of households, for instance single parent households, also impact upon purchasing behavior. Technological E-commerce or Internet shopping has become a significant component of the modern retail market, taking a bigger share of the market Existing markets for Marks and Spencer have expanded beyond UK and has produced a change from the traditional focus of London as the major retail center to a more diffused network of customers and stores across the globe. Traditional product barriers have been disappearing, as more retailers move into offering multiple products and services, and this Company also offers a range of products. Technology has also brought about innovations in the kinds of products offered as well as in business processes, such as the use of laser and self scanning as well as electronic data interchange. Legal: The UK Government has introduced several new legislative measures that are geared to tackle past problems of corporate scandals, and which will also impact upon the functioning of Marks and Spencer Companies are required to improve corporate governance in accordance with the Turnbull Report (www.frg.org.uk) which requires Companies to perform risk assessments and maintain internal controls through constant monitoring. The Annual report of the Company shows that it has also adhered to the requirement to provide a report on corporate governance ( at page 36), as well as full disclosure of risks (at pages 30-31 of annual report, 2007). Environmental: The Company has introduced Eco Plan A, which has several important objectives, such as becoming carbon neutral, ensuring sustainable sourcing, setting new standards in ethical trading, sending no waste to the landfill and helping customers and employees to lead healthier lifestyles.(2007 Report). Their Look behind the label marketing campaign also includes issues such as ensuring sustainable fishing and animal welfare, healthy eating and fair trading Introducing 100% recycled carrier bags and use of sustainable raw materials (2007 Report). John Lewis Partnership: Political: The EU Aerosol Dispensers Directive has introduced new modifications, such as restriction of the maximum filling to 90% in order to ensure consumer safety (www.oim.org). This is likely to impact upon the activities of the John Lewis partnership which sells such products and is also a member of the British Aerosol Manufacturers Association (www.oim.org). The recent sale of Unite, which is a Union that has been sold away from the John Lewis partnership, has impacted upon the reputation of the Company as a fair one that rewards the loyalty of its employees. This sale decision is in contravention of the ethos of the John Lewis partnership. (www.politics.co.uk) Economic The John Lewis policy of “Never knowingly undersold” which allows customers to receive a refund of the difference if they acquire a product more cheaply at another shop, is also being adopted by other stores. Interim financial reports of the Company show an increase of 6.7% on sales in the first six months of this year as compared to the previous year. One reason for this strong growth is its position in the organics market, where its share was 18%. It has also reduced its operating costs and reflects a profit; however with the current competition in the global market and the concerns about the credit markets, it may be difficult for the Company to continue to sustain its competitive advantage. Social A fall in profits in 1999 resulted in a motion put forward by some employees for the business to be floated on the stock market, however in view of the team spirit existing at this company, most members did not support this move, but wanted the Company’s “unique democratic structure” to continue.(BBC, 1999) The Company currently offers high levels of personalized customer service, however with increasing competition from other retailers, it could be difficult for the Company to maintain its advantage, Technological The onset of e-commerce could result in some detrimental effects on the business of this Company, since one of its strengths is its highly personalized levels of service, which cannot be offered over the Internet. Changing customer tastes and preferences may also result in more online shopping taking place, so that business at its full time stores may be affected. Legal: John Lewis Partnership is a public limited company but its shares are held on behalf of all its employees. In view of recent changes in the law such as the need to ensure corporate governance to ensure the benefit of the shareholders, this Company may have an advantage because of its policy of holding shares in trust for its employees. This allows profit sharing for the employees an ensures that their interests are upheld. However, it also poses a disadvantage, because the Company shares are held in trust, therefore from a legal perspective, there are barriers in terms of any change in its current legal status to form a public corporation.(BBC, 1999) Environmental: In view of the added emphasis that is being placed on environmentally safe and sustainable products, the EU Chemical Directive REACH has come into force, which requires manufacturers to minimize the risks associated with using chemicals. The John Lewis Partnership has introduced information available to customers at the point of sale to recycle their empty aerosols. (www.oim.org) The Company’s focus on organic products may be beneficial however, in sustaining customer purchases and profitability. References: * BBC News Report, 1999. “Business: The Company file: John Lewis rules out float” Retrieved December 3, 2007 from: http://news.bbc.co.uk/1/hi/business/the_company_file/451620.stm * “In the can” Retrieved December 3, 2007 from: http://www.iom3.org/pp/pdfs/sep07/In%20the%20can.pdf * John Lewis: Interim Financial report. Retrieved December 3, 2007 from: http://www.johnlewispartnership.co.uk/Display.aspx?&MasterId=b794db7d-4648-44e4-a931-81228f1340fa&NavigationId=576 * Marks and Spender Annual report, 2007. Retrieved December 2, 2007 from: https://images-na.ssl-images-amazon.com/images/G/02/00/00/00/32/14/12/32141262.pdf?mnSBrand=core * Marks and Spencer closures fuel EU labor law debate”, Retrieved December 3, 2007 from: http://www.euractiv.com/en/general/marks-spencer-closures-fuel-eu-labour-law-debate/article-113505 * Mellahi, K., Jackson, P. and Sparks, L. (2002), "An exploratory study into failure in successful organisations: the case of Marks and Spencer", British Journal of Management, Vol. 13 No. 1, pp. 15-29. * Storey, John, Emberson, Caroline and Reade, David, 2005. “The barriers to customer responsive supply chain management”, International Journal of Operations and Production Management, 25 (3/4) :242-261 * Turnbull report. Retrieved December 2, 2007 from: http://www.frc.org.uk/corporate/internalcontrol.cfm * Unite: Protest at John Lewis Council Partnership Meeting”, Retrieved December 3, 2007 from: http://www.politics.co.uk/press-releases/opinion-former-index/equality/unite-protest-at-john-lewis-partnership-council-meeting-$482028.htm * Your M&S: How we do business: 2007 report”, Retrieved December 1, 2007 from: https://images-na.ssl-images-amazon.com/images/G/02/00/00/00/32/17/82/32178202.pdf?mnSBrand=core Read More