What can be done to stop Marks & Spencers profits falling?

Marks & Spencers has had a consistent record of success and profitability until recently when they were suddenly hit by falling sales. Marks & Spencers were totally unprepared for this and while they were developing new stores and expanding the business their competitors were strengthening. Because Marks & Spencers have been highly successful and competitive for so long there was no pressure to improve the business and now its competitors have overtaken and underlying problems have arisen, something needs to be done. The business needs a complete overhaul management needs to be streamlined, the business structure needs to be re-organised to make it more efficient and the marketing mix need to be changed to begin with.

I shall research into Marks & Spencers mostly by going to their website and finding break-even charts, profit and loss accounts and financial results for recent years. I will also go into Marks and Spencer stores and ask for relevant information such as accounts, and I will look around stores to see if anything needs to be improved such as the layout and the appearance of the shop etc. I will look at Marks & Spencers product ranges and the style of its clothes to see if the quality is up to standard and the clothes are fashionable. I will look through the newspapers looking for the latest news and information and I will check newspapers websites such as ft.com for information on M&S in its archives. Once I have obtained enough information from a variety of sources I will read through my data and analyse it to decide how relevant it is to my question. I will then use the data to help me reach accurate recommendations on how to stop Marks & Spencers profits falling.

The Financial summary shows useful information for the past 5 years from this you can see that profit has been increasing until 1999 when it sharply drops. Also you can see where the turnover is coming from so you can see which parts of the business are doing well and which are not. From this I can see that UK retail is doing badly and overseas retail and financial services are doing well as turnover is increasing. Other information such as number of employees and square footage used by the business is also shown, this is useful to see how sales relate to square footage as an increase in the number of outlets should mean an increase in turnover but the summary shows that turnover has slightly decreased.

The consolidated profit and loss account gives detailed information into the company it shows which parts of the business are increasing sales and which parts are losing sales so you can see where the problems in the business are and where it is losing money. A balance sheet and a cash flow statement are also included they show where the money is coming from and how it is being spent. The balance sheets show where the money is obtained and how it is spent. Figures for 1999 and 1998 are included so you can compare them. Profitability and liquidity ...

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A report in the Mirror newspaper about Marks and Spencer is useful as it has the opinions of four experts on how to stop Marks & Spencers profits falling. The report says M&S needs to become more fashionable in the clothes it stocks and it needs to restore its high PR through advertising. The financial summary shows that there isn’t much difference between the 1998 and 1999 group turnovers, but there is a very large difference between the 1998 and 1999 profits to such an extent that Marks & Spencers profits have nearly halved, this would suggest that costs have radically increased.

The increase in costs will be mainly attributable to development of new stores and expansion. More employees have been hired this is shown on the cash flow sheet where payments to employees has gone up also the financial summary shows that retail space has gone up. The costs of expansion are shown on the balance sheet under long-term creditors where they have gone up by 585.4 million. Spending is also shown on the balance sheet where cash at bank and in hand has gone down from 614.9m in 1998 to 281.5 in 1999.

The profitability margin shows that in 1999 Marks & Spencers made a lot less profit compared to turnover, only 7.7% of the turnover was profit, in1998 13.4% of the turnover was profit. The current ratio shows that 1999 had better liquidity than 1998 and the Acid test ratio shows the same so the company does not have a liquidity problem as the number is higher than 1. So Marks & Spencers is less likely to have a cash flow this year than in 1998 because its ratios are better.

The consolidated profit and loss accounts show where the problem lies. In UK retail the clothing, footwear and gifts sales are the main problem as they have gone down by the most, Home furnishings have also gone down but not by as much as the clothing sector. The foods sector has had little loss in turnover so not a lot needs to be improved in this sector. The financial services part of the business has done well as its turnover has gone up so this area of the business does not need to be re-organised. Overseas retail in Europe is doing well as turnover is increasing and Brooks Brother and Kings Supermarkets turnovers are increasing, so the problem is the clothing sector of the UK retail part of the business and this is where profit is being lost.

Measures need to be taken to boost sales in the clothing sector of the business. New styles and new products could be introduced. Market research into what styles and products to introduce needs to be done to find out what the public wants. The financial summary shows that the business has more square footage so there are more shops this should mean that turnover goes up, but in 1999 when there is a lot more retail space there is a slight loss in turnover. So the business has increased costs and lost turnover this is a big problem for M&S.

The information has shown that no more expansion needs to be done yet as the financial summary shows even with increased retail space sales aren’t improving so money is wasted on unnecessary expansion. Marks & Spencers needs to work on improving retail sales and it should use market research to find out what customers want. The clothing aspect of the business needs to be focused on. M&S need to improve the style of the clothes it stocks. They need to be less drab and more fashionable.

PR needs to be restored, as the general public perceives M&S clothes to be badly designed and unfashionable. Market research into what customers want will insure demand is met and that only popular clothes are stocked. The quality of M&S products needs to be high and they need to be kept affordable. A TV advertising campaign promoting a new image will improve PR and sales. Competitors such as GAP have TV advertising campaigns, M&S needs one to compete effectively. M&S has now created a central marketing division to find out what customers want this is a good move because it will give the business an idea of what products they need to stock and how much to stock. So they can order more of stock that is popular so that demand is met and order less of unpopular stock.

By splitting the business up into 3 parts UK retail, overseas retail, and financial services each part can be run more efficiently and you can see where problems lie in the business and each part can be improved on its own. The stores themselves need a new look as they are too drab at the moment they need to look brighter and more colourful this would make them more attractive to customers and improve Marks & Spencers image. M&S launching on-line shopping was a good idea because it shows the business is keeping up with the times and it will increase turnover also M&S will be able to compete better with rival companies that also use e-commerce. The M&S website is one of the most popular in the UK, launching on-line shopping will take advantage of this popularity by offering customers and alternative way to purchase goods. The on-line shopping service needs to be promoted to make sure it is successful. Putting advertising banners on popular websites will increase awareness of the service and TV and radio advertising could also be used. M&S have high costs and so they need to be reduced, selling unprofitable stores will reduce overheads and the sale of the property will bring money back to the business.

Goods are brought from the UK where production costs are high so if goods were brought from overseas instead where labour is cheaper and production costs are lower goods would cost less and the business would save a substantial amount of money. The food and the financial services parts of the business are doing well. I think Marks and Spencer should expand these aspects of the business and improve them to further improve their popularity. More choice and originality in the food section and a promotion campaign could greatly increase turnover and popularity. Financial services is successful because it offers competitive rates on loans and mortgages etc, as long as M&S keeps rates competitive this side of the business should do well. Putting leaflets in newspapers advertising promotions, special offers and new products etc will increase sales but will also make people aware of new products and offers so they can take advantage of them. More assistants in shops are needed as it is hard to find an assistant when you need one this may anger customer and this is bad PR. Hiring assistants may increase costs slightly but helpful assistants will improve customer relations and they won’t have to look round the shop just to get some help. Also assistants will give a more friendly and helpful feel to the stores. Efficiency could improve if motivation amongst employees was better. At the moment employees don’t feel secure in their jobs, as there has been a lot of job losses at M&S recently. Employees need to be told that their jobs are safe a small pay rise could be given. Once Marks & Spencers starts implementing well researched recovery programmes the business will once again have its past success and profitability.

Dale Anderson BS Portfolio Miss Clarke