Dr.

Andreea AVADANEI

Marks&Spencer Report 2011

With a 21 million customers visiting weekly its stores and group revenue of 9.7bn in 2011, Marks&Spencer (M&S) is one of the most important UK retailers. Expanded all across Europe, Asia and Middle East, M&S has a store network of 152 wholly-owned and partlyowned locations and 209 franchises (2011), transforming more and more into a strong international business presence that offers great value clothing, extremely high quality food and a variety of home products. M&S strategy is to become a global multi-channel retailer (Bolland, 2011) in order to reduce its dependency on the UK market conditions and economic climate and to create a powerful brand serving a worldwide customer base. With an extraordinary understanding of customers selective needs based on a complex combination of market analyses and research feedback to identify trends and factors influencing their choices and decisions, M&S provides quality, value and innovation, positioning customers at the heart of the entire business. This report presents an overview of M&S activity and perspectives using a) a comprehensive PESTEL analysis to point out the trends and the environmental influences affecting the business, b) Porters five forces framework to explore and evaluate M&S attractiveness, c) a detailed SWOT analysis to highlight the company main advantages and hot spots and to identify any opportunity it can capitalize on and challenges that may endanger its future evolution and d) a value chain analysis. PESTEL Analysis According to Fahey and Narayanan (1986), macroenvironmental conditions set the fundamental context in which industries operate, so the PESTEL- Political, Economic, Social, Technological, Environmental Legal- framework helps us to identify and understand what changes of the external climate influence the evolution of M&S business. Political The political dimension has a significant impact on the regulation of businesses and the spending power of consumers. The decision of the European Economic Committee to allow the free trade between its members helped companies to import their products easier than before so that M&S competitors gained a larger market share. Also, political factors such as change of government could influence the minimum wage that M&S employees are paid. From another point of view, political modifications could affect the retailers financial results. The last two VAT changes operated by the British government, from 15% to 17.5% in January 2010 and from 17.5% to 20% on January 4, 2011 negatively influenced M&S activity, rising their costs. Economic Economic factors such as exchange rate dynamics, interest rates levels and inflation have significant implications in the companys evolution. The international financial downturn has affected all markets- including the UK fashion sector- so that recent research (Mintel, 2009) has indicated clothing expenditure as the first victim within this industry. 1

Dr. Andreea AVADANEI In the light of the tax rising, unemployment, interest rates and credit restrictions driven mainly by the global crisis, over the next months, the retail industry recovery is expected to be a slow and moderate one. Another negative factor is the increased cost of imports, due to a weak national currency. Social The social factors that M&S would need to consider are consumers lifestyle changes and concepts, their expectations about more fashionable clothing or healthy food choices, demographics and increased price sensitivity (which could leave M&S in a less competitive position). Technological The media channel has a crucial part in communicating new trends in fashion to international customers. As a consequence, internet progress could also influence M&S sales, so that the company has updated its website from a corporate profile to a new one offering online buying. From a different perspective, some advances in the technologies used to produce food may cause natural environment pollution and endanger humans health, so special attention must be given to this issue. Environmental Over the last few years, environmental aspects became a problem of vital importance, both for corporations and the global community. Under these conditions, in 2006 the English retailer designed Plan A, a group of 180 environmental commitments as an integral part of the business and brand that is Marks&Spencer. According to Sir Stuart Rose, chief executive at that time, M&S should transform into a green business and needs to go beyond traditional corporate social responsibility, in which it has a rich heritage (Felsted, 2011). In the same time, Plan A is about finding new and sustainable income sources- a happy example is M&S Energy initiative, serving more than 400,000 people who by electricity and gas. Globalization, as a sum of financial, economic social and technological exchanges is also a key environmental factor influencing M&S business operations. Legal When the Sunday trading was first legalized in the UK in 1994, both Marks&Spencer and Waitrose had opposed Sunday opening. Today, Sunday working hours are in a centre of a debate In Europe and a potential change could impact the UK economic arena conditions. Porter five forces analysis offers a simple framework that helps to explore and evaluate M&A competitive advantages and position, focusing on the micro-climate they operate in. Threat of Entry The implications of the global turmoil and the advantage of being a strong brand would make it difficult for the new entrants to join the market. Setting up a new successful business-with all that it implies- is costly and difficult, especially with the interest rates being unpredictable. However, in the clothing industry, customers loyalty is a delicate subject. Internet technologies have allowed the entrance of new competitors on an international scale offering lower prices so that customers become more and more comfortable and secure about shopping online. Supermarkets expanding their product lines with clothing, entertainment and household items are another hot spot that must be countered.

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Threat of Substitute As a result of the current economic conditions, it is possible that customers switch to alternatives, reducing their demand for M&S products. In order to keep their customers loyalty, a potential solution would be to create substitutes within the brand. In the food industry, the Tesco giant has adopted a strategy centred on matching its products with various consumers profiles. As for the clothing market, retailers such as Next, John Lewis or Debenhams offer high quality and value at lower prices, being powerful competitors that pose significant threats. Threat of Buyers As the customers power to bargain power increases more and more, enjoying constant discounts from online website and supermarkets, they can dictate their preferences and rules. Therefore, M&S have to focus on maintaining customers confidence, offering the best possible value for money. Threat of Suppliers In their efforts to best react to consumer trends and lifestyle changing, M&S are opening up to foreign suppliers, extending their base of available suppliers. Because M&S largely buys materials and not finished goods, they do not depend on certain suppliers as other firms do. This is a positive element for margins (Marks&Spencer, 2009). In essence, the power of suppliers is low, as it is the case when negotiating a discount with companies like M&S. Competitive rivalry M&S activates in an extremely competitive industry, facing serious challenges both from clothes retailers such as Next, John Lewis, Debenhams and supermarkets, for example Tesco, ASDA, and Sainsbury, with a longer history in the market. The following SWOT analysis gives a clear picture of the business environment Marks&Spencer is operating in at the present time. Table 1. Marks&Spencer SWOT analysis Strengths excellent value and quality, helping to ensure customers return; brand clarity; manager training opportunities; responding to trends; continued innovation (such as Bodymax in 2010, a revolutionary range of shape wear for men); internet technologies; responding to customers; an effective marketing strategy; great shopping environment; long term relationship with their Weaknesses waste store spaces; M&S reorientation from the generations the served for years to a younger public could be problematic because it increases the risk of losing their loyalty to competitors such as Primark and Matalan, offering lower prices in the context of the international crisis; not reducing costs in the same way as their competitors', which means M&S is outlaying more of their profits.

Dr. Andreea AVADANEI Strengths suppliers; an extensive customer base, which is a major strength regarding sales and profit; strong and popular reputation, meaning people view it with respect and believe in it. Opportunities marketing extending; importing lower price materials from India and China; analyzing the export opportunities as a way to raise profits; changes in technology that could offer an opportunity to bolster future success; the expanding of the companys online presence in order to increase profits from online shoppers/internet users. Weaknesses

Threats the uncertain economic climate with possible negative implications on consumer confidence and sales forecasting; rising cost of materials and products affecting M&S profitability; deterioration of companys financial position, with a negative effect on the cost of financing and growth plans; low motivation and retention of key employees a result of troubled economic and financial environment could influence the ability to deliver business plans; stock management problems; chemical pollution; rapid change in technologies; intense competition mainly from ASDA, NEXTPLC and Tesco that could affect the companys market share; consumer lifestyle changes that could lead to less of a demand for Marks&Spencer products/services; tax increases placing additional financial burdens on M&S.

For M&S the most challenging issue is to build upon the companys already existing advantages and work to overcome the threats of the change. Value chain analysis Michel Porter (1985) was the first to describe and popularize the concept of value chain as the chain of activities for a firm operating in a specific industry, highlighting the company s potential to realize its competitive advantage. The value chain theories of the primary activities indicate a number of specific functions of the company: sales and marketing, inbound logistics, outbound logistics and service (maintenance).

Dr. Andreea AVADANEI For M&S sales and marketing are one of the top priorities so that advertising, promotion, pricing and managing distribution channels are extremely important for the companies growth and success. Considering the inbound logistics, unlike the other companies, Marks & Spencer used to exclusively work with UK suppliers in order to create quality products. That is no longer the case, M&S receiving today materials from other states also. M&S established excellent connections and reciprocal profit with its suppliers, building long term-partnerships to collaborate with them (Wilson and Gilligan, 1997, p. 204). The English retailer intends to reduce its dependency on full-service vendors, enabling more corporate control on its inbound supply chain (OReilly, 2010, p.1). As regards the supply chain, the evolution is a positive one-East Midlands site is progressing well, the retailer offers international direct deliveries, has a new warehouse management system operational in Bradford and an NDC operating model trial (Bolland, 2011). If analyzing outbound logistics, M&S have over 703 stores in UK located in high streets, airports, stations, retail parks ranging from large stores to simply food stores. Marks&Spencer main support activities include companys infrastructure, technology development, human resource management and procurement. The effective governance of M&S is based on leadership and collaboration, the role of the Board complementing, enhancing and sustaining the work of the Executive (Marks&Spencer, 2009). M&S have a number of training programs for the staff in order to highlight their skills. Furthermore, all key employees will be trained on responsible buying as part of their development by the end of 2012. With the rapid change of information technology, having a website, an online shop or a database is vital for increasing sales from online consumers. Therefore, M&A have significantly invested in information technology, such as online shops or electronic POS systems (even though with some problems at the beginning, such as the impossibility to show its stock immediately) to grow sales, improve its efficiency and increase customer service. The Britain retailer is in a middle of a technology refresh programme and signed in 2007 a service contract with Logicalis related to networks and infrastructure development and IT innovation. Human resources recruitments and products procurement have a local dimension. One M&S objectives is to increase the use of small and small local suppliers by improving the understanding of the buying teams of the different needs of small producers by 2012 (Marks&Spencer, 2011b). Conclusion M&S operates well in a challenging climate by offering excellent quality and great value, making every customer feel special, in line with years and years of tradition and heritage (Marks and Spencer, 2011a). The international financial downturn has discouraged the entrance of traditional high street retailers to the market; however, M&S is facing another major challenge, namely the powerful online players and the ongoing increase of supermarkets product lines. Thus, in order to become a powerful presence in the international profile arena, M&S should explore and develop their key advantages, overcome the existing hurdles, as well as transform these elements into opportunities, maintaining its position as a successful company.

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References: 1. Bolland, M., 2011. Half year results 2011/2012. [pdf] London. Available at http://corporate.marksandspencer.com/file.axd? pointerid=449d56b2e4604a4487d2a7175356da57&versionid=30bda7e51a624f9aac57 cb13a22473a5 [Accessed 12 November 2011]. 2. Fahey, L. and Narayanan, V.K., 1986. Macroenvironmental Analysis for Strategic Management. St. Paul, MN: West Publishing Company. 3. Felsted, A., 2010. Marks and Spencers green blueprint, Financial Times, [online] Available at: < http://www.ft.com/intl/cms/s/0/0a77b918-4404-11e0-8f2000144feab49a.html> [Accessed 12 November 2011]. 4. OReilly, J., 2010. Marks&Spencer Tailors Supply Chain, Inbound Logistics, [online] Available at:< http://www.inboundlogistics.com/cms/article/global-logisticsdecember-2010/> [Accesed 12 November 2011]. 5. Marks&Spencer, 2009. Annual Report and financial statements 2009. [pdf] London. Available athttp://annualreport2009.marksandspencer.com/pdfs/MandS_AnnualReport_2009.pdf [Accessed 11 November 2011]. 6. Marks&Spencer, 2011a. Annual review and summary financial statements 2011. [pdf] London. Available at: <http://corporate.marksandspencer.com/documents/publications/2011/annual %20review%202011> [Accessed 12 November 2011]. 7. Marks&Spencer, 2011b. How we do business Report 2011. [pdf] London. Available at:<http://annualreport.marksandspencer.com/downloads/PDFs/annualreport/MandS_AR2011.pdf > [Accessed 11 November 2011]. 8. Mintel, 2009. UK Retail Rankings 2009. London: Mintel. 9. Porter, M., 1985, Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press. 10. Wilson, R.M.S. and Gilligan, C., 1997. Strategic Marketing Management Planning, implementation and control. 2nd ed. Oxford: Butterworth-Heinemann.