REPORT ON THE BUSINESS OF MARKS & SPENCER

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REPORT ON THE BUSINESS OF MARKS & SPENCER

* Classification of the business to its ownership

* The benefits and constraints of ownership

* The objectives of the business and how well they meet them

* The structure of the business

* The functional areas and how well the business meet objectives

* Management style and culture

* How quality assurance and control system contribute to added value

* Alternative methods of quality assurance and control

* Communication channels within the business

MARKS & SPENCER

AN INTERNAL INVESTIGATION OF THE BUSINESS OF MARKS & SPENCER

Introduction

.0

This is a report on Marks and Spencer a well known retail company. The business that I have chosen to do is well know in the UK retail. This business is Marks and Spencer. Marks and Spencer has also recently been in the news for falling profit and sales in 1999/2000. So Marks and Spencer is business which is on it way to recover. Famous for setting the highest of standards in the retail industry, pioneering its own chargecard and generating such snob value on its products, yet controlling prices to bring their products within most people's reach. Marks and Spencer has extended its brand overseas where it continues to achieve substantial growth. This is likely to be its main source of growth in the near and long term future as the company develops its franchise business.

There are a total of 628 locations worldwide. The company also makes great weight of how it is run - first class customer service, operating efficiency (through economies of scale), long-term partnership with suppliers, financial services, staff remuneration and overall packages the best in the high street. Following a wide-ranging and detailed strategic review of its business, the Board of Marks & Spencer has announced significant changes to the Group strategy and structure.

The Board and management team is committed to restoring profitable growth. This will be achieved by total focus on the recovery of the UK Retail business.

To eliminate distractions and gain maximum impact from the improvements, Marks & Spencer intends to close its subsidiaries in Continental Europe; to divest its two US businesses, Brooks Brothers and Kings Super Markets; to franchise its subsidiary business in Hong Kong; and to close the direct catalogue business. In addition Marks & Spencer will release value from almost half its property portfolio.

In order to improve the capital structure of the Company Marks & Spencer intends to return £2 billion to shareholders by the end of March 2002.

2.0 Terms of Reference

2.1

Anyone thinking of starting their own business or joining an existing business needs to have at their fingertips knowledge about what makes a business work successfully. This report explores the business of Marks and Spencer in order to determine in analysing the company I will focus on the following areas types of the business, business objectives, structures and cultures.

3.0

Procedure

I have phoned the head office of Marks and Spencer to request their Annual Report, since they don't send it out they only send out there Annual Review.

2 I will use the Annual Report on Mark and Spencer web site.

3 I have also been reading the Financial Times to see if there is any useful information, I can use for the business I is investigating.

4 I have also used the Internet to find more information on the business.

5 I will be visiting Mark and Spencer to interview staff and talk to the manager

6 I am also using the Business AVCE textbook for information.

4.0

Findings

4.1 Classification of Ownership

4.2 Marks and Spencer can be classified as a public limited company; it can be also called an incorporated business. Marks and Spencer is a business that provides good and services e.g. clothes, finance. It therefore comes under the tertiary sector. Marks and Spencer is a profit making company, which belongs to the private sector. The private sector includes all those business that are set up by individuals or groups, of individuals. Most with the aim of making a profit.

5.0 Benefits of Ownership

5.2 The benefits of Marks and Spencer's being a public limited company is that all members have limited liability, this means that the firm continues to trade if one of the owners dies and more power is enjoyed due to its large size. The benefits as follows:

* 5.3 Huge amount of money can be raised from the sale of the shares to the public. So this means any one is able to buy shares from them.

* 5.4 Production cost may be lower as firms may gain economies of scale; this means that when they buy large amounts at a reduction in cost per unit, bulk buying reduces the cost. The company can also add value towards the goods to make a profit and to pay staff and any other cost.

* 5.5 As a result of their size, public limited company can often dominate the market. This shows that being a plc is a strong position on the market.

* 5.6 It becomes easier to raise finances, as institutions are more willing to lend to a public limited company because they are reliable. For example institutions are not likely to lend big amounts of money to partnership or a sole trader because it would be a high risk.

6.0 Constraints of Ownership

6.1

* The constraints of marks and Spencers being a plc ownership are as follows:

* 6.2 Since anyone can buy their shares it is possible for an outside interest to take control of the company. In order to do this the person will have to buy a huge amount of shares.

* 6.3 All of Marks and Spencers accounts can be inspected by members of the public. Competitors may be able to use some of this information to their advantage. They have to publish more information than private limited companies.

* 6.4 As a result of Marks and Spencer's size, they are not able to deal with their customers at a personal level.

* 6.5 They way they operate are controlled by various company acts which aim to protect shareholders. The reason this is because most people that invest in a company like to see an increase in the dividend yield.

* 6.6 If marks and Spencer's do not make enough profits, then fewer people will invest in the company. If this happens the company would then find it hard to raise capital for the public.

7.0

Objectives of Business

7.1 The main objectives of marks and Spencer's are as follows:

- Profit maximisation

- Increase sales

- Market leadership

- Offering high quality service

- Growth

- Reward shareholders

Profit Maximisation is often the main aim of the private sector business. This can be achieved where the difference between the total revenue earned by the business from selling its products and the total cost of the products is the greatest. So you could say that Marks and Spencer's are aiming for as much profit as possible. In the UK retail the turnover and operating profit before exceptional items were £6.3 million, in 2000/2001 compared to last year 1999/2000 is £6, 4 million, so at the moment Marks and Spencer UK retail business is not so successful at profit maximisation.

7.2

Mark and Spencer International retail and franchise businesses have operated 125 franchise stores in 26 countries. The turnover in Europe was increased this year 2000 /2001compared to last year 1999/2000. The turn over in North America (exc. Canada) has also increased compared to last year. In the Far East sales had also increased by approximately 4% to 110.1 million compared from last 105.9 million. So marks and spencer business internationally is very successful compared to its UK retail business. The way the business can maximise profits is buy satisfying customers by making more products or services available like selling financial services life assurance, personal insurance and ms insurance this are a few services Mark and Spencer offer customers.

8.0 Increasing sales

8.1 The objective of increasing sales is very important for Mark and Spencer. In order to increase sales they must meet and satisfy customer's wants and needs. Marks and Spencer also have to attract new customers, they must target the younger market, and this could help to boost their sales. The chairman and Chief Executive Luc Vandevelde also want to attract new customers, so that the UK sales increase. I think that Marks and Spencer are on their way towards being successful in meeting their objective for increasing sales; I still think that they are more successful in the international retail. The reason why I think that Marks and Spencer are on their way towards being successful is that on the 6th of November they had their Interim results. Marks & Spencer has reported a 20% increase in profits for the six months to the end of September. The retail giant made £220m, a figure at the top end of analysts' expectations. The profit boost reflects the trading statement released by M&S last month, which showed an overall rise in sales of 2.8%. Although the figures do not cover October, chairman and chief executive Luc Vandevelde said customers seemed to be responding positively to the changes made by his management team.

9.0 Market Leadership

Marks and Spencer also have the objective of gaining market leadership, the chairman

And chief executive Luc Vandevelde said that he's company will aim for this in every category in which he trades, but they must meet more demand from the customers, in order to be competitive. Marks and Spencer has not achieved its objective to be successful in market leadership, I think it will take some time for marks and Spencer to recover back to be market leadership; they are improving the way they work.

Here is bar chart showing the category of market leadership by Marks and Spencer

9.1

Marks and Spencer also have an objective for providing high quality service. They are also well known for their quality. Marks and Spencer claim that no one cares more about quality it is said in their annual review report. I think they meet their objective for providing high quality service, e.g. in their Milton Keynes Store. Most of their customers that visited Marks and Spencer were happy with the service on my survey, but I noticed from my own personal experience some stores were more inviting than others by the display put on at the entrance of the store and were more efficient and helpful. Marks and Spencer are meeting their objectives for high quality service in Milton Keynes and the West End branch in London.

10 Growth

10.1 Growth is an important objective of marks and Spencer. Many businesses pursue growth as their main objective. Business people argue that the firm must grow in order to survive; failure to grow might result in a loss of competitiveness. In the U.K. retail Marks and Spencer have 303 stores at the end of March 2001. This also includes three outlet stores, which opened during the year. Marks and Spencer also has their franchise business, which operates 125 stores in 26 countries. If Marks and Spencer are able to grow, they could dominate the market, in the future it may be able to enjoy some monopoly power and raise its price. If they do well they could be able to exploit economies of scale, if they grow large enough. I think that Marks and Spencer are successful in growth, and also think that they are meeting their objective. The number of people they employ can be used to measure the growth of Marks and Spencer also at the end of March 2001 it had a selling space of 12.4M sq. ft.

1 Rewarding Shareholder

1.1

In order to reward shareholder, marks and Spencer have to increase profit, if there is a failure to make profit, then it leads to loss of confidence in the business, this is particularly among the shareholders that is why, it is important for them to keep the shareholders happy. The chairman and executive Luc Vandevelde say "while providing a more appropriate capital structure by returning £2 billion to our shareholder." If Marks and Spencer can return £2 billion to their shareholders, then I would say that they are successful in meeting their objective. The way Mark and Spencer shareholder receive their shares, is by being given yield this is the rate of return to the shareholder paid in the form of dividends, so the higher the yield, the more money the shareholder earns. According to the business magazine the economist in November edition. Mark and Spencer is still one of the richest companies in the UK. The company highest share price in October was 314p the lowest was 186p.Marks and Spencer also shutdown it's underperforming Direct clothing catalogue business. Recently the first part of a sale and leaseback of 78 properties was announced, raising £348 of the £ 2 billion earmarked for the return to the shareholders. Shares and 21 B shares.

Shareholders can have their B shares redeemed for 70 pence each in cash on 25 March 2002.Alternatively they can retain their B shares on which they will be entitled to a dividend of 75% of 6 months LIBOR until such shares are redeemed.

The next opportunity for shareholders to have their B shares redeemed for 70 pence each in cash is September 2002 and then every six months thereafter.
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M&S said the return is conditional upon the approval of shareholders and the High Court.

Commenting on the announcement chairman and chief executive Luc Vandevelde said the return of capital "will enable us to improve the potential for a faster rate of earnings growth and create a more efficient balance sheet structure."Our objective was to treat all shareholders in the same way. The proposals achieve this and give them a choice as to when to receive cash."M&S said shareholders would be sent a circular by Feb 4 setting out in full the proposals. The return is dependent ...

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