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The report critically analyses the impact of external and internal influences on the business strategies of Marks and Spencer. SWOT analysis is undertaken to highlight the organization’s strengths and weaknesses, opportunities and threats the company may encounter in the process of further development, challenges they has been facing from their competitors and the range of strategic options available to the company. Different strategic options like acquisition, merging, diversification etc have been highlighted. Certain details have been taken as reference from its annual reports and their top management’s comments. A PEST analysis is carried out to examine the environment in which Marks and Spencer is operating.
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Marks & Spencer plc, is one of the biggest and oldest business organizations in the UK, was founded in 1880s as a small street shop. They trade in clothing, footwear, home and furnishing and food. Their annual sales crosses £8 billion and employs over 60000 people worldwide in over 850 stores around the world in about 30 countries, serving tens of millions of customers every week and is now the biggest fashion retailer in the UK. This report discusses M&S and its position in today’s market in the UK and around the world.
Competition gives an organization a tough time in the market. same happens with M&S. Retail market in the UK has a significant number of competitors. Although M&S is one of the oldest and has around 9 billion pounds annual turnover, they are facing the same level of competitive rivalry. NEXT, AnnSummers, House of Fraser, Topshop, Gap, BHS, H&M, Primark etc are all its rivals on the high street in the clothing sector.
Prices are usually more than some competitors. If they make certain decrease in its prices, they may improve sales by certain percentage. Instead of modernizing stores and the huge advertisements, price cuts can give a substantial increase in sales. As in the Christmas sales in last few years were 5-10 %.
Products of M&S are very diverse. They deal in almost all products of today’s competitive market. controlling such a diverse number of products is becoming difficult for the management. They might not prove well in electronics and credit cards.
Customers’ behavior has changed over the years. Customers tend to go for easy-wear and wear-once garments instead of durable clothing.
Global business activity looks a bit more competitive and demanding. Last year Marks & Spencer’s chief executive, Sir Stuart Rose, laid out ambitions to generate up to 20% of group sales from overseas within five years. Expansion plans include more franchised outlets and are likely to see a return to wholly owned international outlets. Guardian.co.uk/business
ANALYSIS OF MARKS AND SPENCER’S INTERNAL ENVIRONMENT: Internally M&S has obtained certain exclusive internal factors which make them different to their competitors.
Competitive advantage has been supporting M&S over the years. Until mid 1990s, they had a leading share of UK market. they used their competences and capabilities to exploit their difference and create their competitive advantage by the following;
As stated in their annual report by the CEO, “in terms of food pricing M&S has always stood for value, which is a function of price times quality. The food we sell is of finest quality in the high street.” The company differentiates itself by serving the mass market with innovative, high quality goods at competitive prices.
Brands management with innovative designs
M&S have segmented their sub brands to assist customers in finding designer ranges such as Autograph and Limited collection together with Per Una which offer great choices for younger customers at affordable prices.
Closely managing supplier relationship
M&S is reputed for procuring 80% of its food products from the UK and Republic of Ireland. Furthermore in order to cut cost M&S moved their clothing supply base overseas in the 1990’s because of lower cost of production – in order to keep their products competitively priced.
4. Self checkout: M&S is the first retailer in the UK to introduce self checkout tills in their food halls. This provides customers an easy shopping environment and helps them save time.
One of the strengths of M&S is its socio-technical system including culture and technical skills. This system has been regarded with respect across the retail sector and beyond. That’s why its managers have been poached by other organizations hoping to get some of the M&S magic.
Marks & Spencer has one of the richest and most extensive customer databases available to any retailer in the world. There are more than three million active M&S charge card accounts, and on average ten million transactions are made per week. Steven Bond comments, “For years we were sitting on a goldmine that went unexploited because we were already successful. Now we appreciate the immense value of all this data.”
Brand which are exclusive to M&S also make an internal asset. Different brands like Autograph, Blue Harbor etc
Sale of former acquisition: M&S has sold out many of its stores due to their low performance and low turnover. Examples are the sale of ‘Brook Brothers’ that was sold out for 225 million dollars compared to its buying price of $750 in the 1980s boom. M&S denied the price was poor, even though analysts had originally forecast a possible value of up to $400m. M&S said the market had been hit by the effects of 11 September. “It is a difficult environment and we believe we have got the best price in the circumstances,” a spokeswoman said. They also sold out kings super markets ‘kings’ for £35.4 million. It was announced that ‘kings’ didn’t fit into their business which compelled them to sell it out.
People: M&S has a good training and a clearly defined career path to their staff. Their staff turnover rate is among the lowest in industry. 27% for customer service assistants 12% for management etc. moreover, 40% of staff have been working for the last 5 years and 680 workers are celebrating 25th -40th anniversaries during 2007-08. Pensioners and present staff are provided with free health facilities like breast cancer screening tests. About 25,000 employees are participating in its share save schemes in 2007-08. 40,000 great service awards were handed out to staff who did a particularly good job by taking care of customers. Mystery shopping records show the good performance of employees.
Management and structure: M&S has an ideal managerial structure. Lord Burns stood down as Chairman, with effect from 1 June 2008. Sir Stuart Rose was appointed Executive Chairman from the same date and has committed to stay with the Company until the AGM in July 2011, when he will retire. Sir David Micheal is appointed Deputy Chairman from 1 June 2008. The Company intends to appoint an additional Non-Executive Director in due course. Ian Dyson will become Group Finance and Operations Director, taking on responsibility for Retail and HR, alongside his current responsibilities of Finance, IT, Logistics, Property and Store Development. Steve Sharp will continue as Executive Director, Marketing, with responsibility for Marketing, M&S Money and Store Design. The chief executive, sir stuart is most influential figure in the organization structure of M&S. “Stuart has tons of experience in business at tough times, I wouldn’t write him off but it is a challenge,” said Lorna Hall executive editor of British apparel industry bible Drapers. Rueters, 11 May, 2008.
All major retailers are blamed for labor behind the label. There has been a big discussion about the low wages paid to workers who produce products for the high street. M&S is also under fire from pressure groups to do nothing to increase their wages. Lets clean up fashion 2008.
M&S’s prices are higher compared to the competitors on the high street. Most of the high value items can be purchased from Next, Arcadia etc in comparatively lower or the same prices.
Customers’ behavior is evident of the fact that they prefer short term and easy wash products. Most of the M&S’s products are long lasting and durable which are losing preference in today’s market.
Lake of organizational culture is one of the weaknesses for the future progress of the organization. Sir stuart has been doing dual role of CEO and Executive Chairman. This shows the central power source with rays of influence from the central figure through the organization.
Major challenges: M&S has been facing a number of challenges including shareholders’ disappointment, sales drop and lower share prices.
Shareholder disappointment: Till 2007-08 M&S has total 1,586,478,423 number of ordinary shares which are held by 223,128 ordinary and corporate and institutional shareholders. There has been low share price since late 1990s. Guardian, 09 July, 2008, stated that investors were very disappointed by the recent slump in share price which was desasterous.
Advertisement: M&S faces the huge expences on advertisement on BBC and ITV etc starring the most expensive models like Laura Baily and Noemi Lenoir. Different media are being used like TV, internet, Bill-boards etc.
STRATEGIC OPTIONS: M&S has a range of options to improve its sales and profits and regain their lead in the market in the coming 5 years.
Limited Growth Strategies:
Do Nothing: Marks and Spencer can better perform by doing nothing and staying in its prevailing conditions. The present financial crisis has made a considerable decrease in number of customers which may continue, according to financial analysts, for another few years.
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Market penetration: Marks and Spencer has an option to penetrate in the market through advertising, price cuts and volume discounts. As there move to introduce a new range of women’s wear. The Portfolio range will comprise “essentials” for M&S’s core womenswear shopper, the retailer’s head of clothing Kate Bostock told The Daily Telegraph. It will be the first new brand the retailer has launched in four and a half years.
Substantive Growth Strategies:
Vertical Integration: Marks and spencer can acquire its input suppliers in foreign countries like India and China. In this way it can make its own supply chain which will be substantially cost effective. It can work simultaneously in those countries to improve its sales and profit.
M&S can also increase its sales by expanding its business to China and hit the one billion population market there. Beijing with a population of 15.2 million, Shanghai 20.2 million and Guangzhou-Foshan has 7m which can be very big market place for M&S. Mumbai and Delhi will have 24 million of population by 2020. Cost, labor and number of potential customers will add to its profits. Economictimes.indiatimes.com
Target sport customers: customers requiring sports and leisure products and shoes can be an easy target for the organization. For this purpose, M&S can set up joint ventures with those organizations who supply the above products through their respective chain stores. Clarks, Timberland and Nike are the common examples.
Acquisition: Many a time M&S has acquired different businesses which fit into their own and made them even more successful and profitable. It acquired 50% of Marinopoulos which operates 38 stores in Greece, Romania, Bulgaria and Switzerland for £38 million. It also plans to open 50 more stores in these markets over the next few years. M&S simply food acquired 28 stores of Iceland foods limited for 38 million pounds in 2006. All these stores are in target locations.
Mergers or build alliances : It has made an alliance with Amazon.com for its
e-commerce. Under the terms of the agreement, Amazon Services Europe will host and provide the technology behind the Marks & Spencer branded website and its in-store and telephone ordering and customer services systems. Marks & Spencer will remain responsible for the management of its website, customer service operations, warehousing and distribution. http://www.internetadsales.com/modules
A potential strategic option of merger and alliance is with quality shoes like clarks and Nike etc. M&S can make their shoes section more profitable.
Take over can easily take over some of their rival in the bid to increase sales of certain products.
Joint ventures: M&S has started a joint venture with the suppliers of electric trucks to reduce the number small trucks used for light deliveries. Another major project worked with a South African NGO to establish a small business harvesting and selling bouquets of wild flowers, called fynbos, from the Agulhas Plain in the Western Cape. M&S and Shell Foundation employees worked with local stakeholders to establish a supply route and helped write a business plan for the new business which would create jobs for local people living in an area of high unemployment. Shell Foundation It is also running joint ventures with different environmental agencies like Oxfam, prostate, WWF etc, to combat environmental pollution. Wall-mart has already started business with Bharathi Enterprises in major cash and carries. French Carrefour is also planning to run whole sale business in Indian market in near future. The arrival of American and French companies is a major threat to the expansion of M&S and can give it a serious edge in the years after.
Chief executive Sir Stuart Rose said “India is a very exciting opportunity for Marks & Spencer and a market where there is the potential for M&S to become a major retail brand. Reliance Retail is the ideal partner for us to accelerate our expansion and create the opportunity to open much bigger M&S stores. We have been very impressed by their strength in technology, logistics and property and the speed with which they have become a major player in India’s retail scene”
Small ventures: M&S is also planning to run small ventures in the UK and abroad with different indigenous companies. One of the best examples is the Indian Planet retail which sells food and furnishing under M&S. Other target places of M&S are food shops at tube station, rail stations and bus stations.
Outsourcing: European and American retailers seem to have less loyalty to indigenous products as the quality and standards of the foreign manufacturers is improved. After the First World War, many British retailers such as M&S initiated ‘Buy British’. But as the quality of most of the imported items improved and the price difference increased, they started outsourcing most of their items from the far Eastern countries such as Hong Kong and Taiwan.
Price cut strategy: Cut online prices: M&S is offering almost the same prices for both in-store and online customers. If it gives a substantial cut on online shopping, it may reduce costs. According to the state of retailing 2008, the 11th online shop.org (a division of the national retail federation) study conducted by Forrester Research inc. 72 % of online retailers believe that the online channel is better suited to withstand an economic showdown than offline channel. The Internet properties of the 100 largest online high street retailers in the UK, such as Argos, Next, and M&S, received 19.3% more UK Internet visits during July 2008 than the 100 largest online only retailers, such as Amazon, Play.com and ASOS. http://www.sas.com
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