Analyse and evaluate the industry environment in which Marks and Spencer operates

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Corporate Strategy and Operations                            Module Code:         CPH2001A                                                                                          -------------------------------------------------------------------------------------------------------

Corporate Strategy and Operations

Module Code:         CPH2001A

Tutor: Graham Webster

Student Id 9907031


Index

Part 1.

Introduction                                                                                            page 3

Part 2.

Part 3.

Part 4.


1. Analyse and evaluate the industry environment in which Marks and Spencer

operates.

1.1 Overview

Marks & Spencer (M&S) is one of the UK's leading retailers of clothing, foods, homeware and financial services, serving 10 million customers a week in over 300 UK stores. The Company also trades in 30 countries worldwide, and has a Group turnover in excess of £8 billion. Marks & Spencer is the UK's leading clothing retailer with more than 12.4 million square feet of trading space across 312 British stores. The Company also trades on-line at www.marksandspencer.com. (Source Marks and Spencer.com)

The Group employs more than 60,000 people worldwide. In 2000/01 Group turnover was £8.1bn and profits before tax and exceptional items were £480.9m. The Company operates further wholly owned stores in the Republic of Ireland and Hong Kong and has 131 franchise stores in 28 countries operating through a network of successful partnerships.(Source Marks and Spencer.com)

The group's financial services business provides customers with a range of products including account cards, personal loans, unit trust management, life assurance and pensions.

Retailing accounted for 96% of fiscal 2001 revenues and financial services, 4%. M&S also operate a catering service (lunch to go.com) coffee shops (Café revive) and the online sale of personalised cakes and flowers. Though turnover primarily relies on the clothing sector, M&S have been eager to diversify and place great emphasis on food and have opened several food only retail outlets in Scotland and England.

Such a diversified approach means that Marks and Spencer compete with various rivals either directly or indirectly. Identifying direct like for like competitors can be of particular difficulty. As M&S compete with banks, flower shops, coffee shops, catering firms etc. Though M&S diversified approach bears a canny resemblance to that of the supermarket sector though one can derive that the importance of primary and secondary products is reversed. (See Table 1.1)

(Table1.1 A table illustrating a comparison of M&S Activities with the supermarket sector)

M&S also face competition from Debenham’s, Next and the Burton group which are primarily concerned with the clothing retail sector

1.2 PEST Analysis

One manner to enable an analysis of a Industry is the use of a PEST analysis this enables one to identify key influences and their resulting affect on the manner in which a industry operates. The PEST analysis below also considers the role of competitor, customers and suppliers 3 key components of SPICC analysis

1.2.1 Political

At present the labour party will assert governmental control for at least the next four years, current opinion also suggests labour are likely to win the next election though bearing in mind that things can changes so drastically in politics and the next election is a minimum of four years away such prediction could easily to turn out to be false.

Traditionally Labour have promoted strong trade union ideals and were responsible for the introduction of the minimum wage. As such firms have had to adapt to wage rises and have been forced to find other ways to lower costs. Supermarkets such as Tesco have in the past reduced costs by exploiting suppliers by taking advantage of their strong buyer power. Farmers in particular have been the subject of such exploitation though the governments competition commission has since attempted to ratify the situation by introducing a code of practice (BBC online 2001, Supermarkets code 'too weak') Such exploitation has not hindered Tesco’s profit margin which has once again increased. Indeed recent scandal involving clothing retailers Gap and Nike as concerns Sweatshop practice has not been attributed to any loss in sales. Though Gap has reported a serious decline in sales this has been attributed to a decline in product quality and not its sweatshop practice.  

The formation of the Competition Commission would suggest that Labour are eager to encourage competition and thus one would assume adopt a anti-monopolistic regime. As such mergers are thoroughly investigated as to ascertain whether particular mergers conflict with Labours competition ideologies. If evidence suggests that a particular merger is likely to hinder competition. Labour are unlikely to allow such a venture. Asda was subject to such investigation when it merged with Wal-Mart though the Competition Commission deemed this merger to be of benefit to the public, Such assumption has been proved correct as since Wal-Mart’s entrance within this sector competition as concerns brand, choice and price has rapidly increased thus offering the public greater choice and lower prices.

Labour currently adopt a pro euro stance and will attempt to persuade the public to adopt a similar view.  As such firms in all sectors and industries should be at present evaluating the positive and negative affect of such policy and manners to maximise the benefits and minimalise the negative consequences.

1.2.2 Economic

Corporation tax is currently 30% for large firms.  Tax credit is allowed for research and development

Employees of U.K firms will be liable for a 1% rise in national insurance contributions as such disposable income of consumers will be reduced and employees of firms may seek to reconcile such a loss with a pay raise (BBC online, Budget 2002: The experts view ' Wednesday, 17 April, 2002, 18:45 GMT 19:45 UK)

The underlying rate of inflation was 2.3% for March 2002. The bank of England is attempting to keep inflation below 2.5% and hopes to prevent a rise in interest rates. A rise in interest rates will complicate any financing decisions and may hinder any long-term investments as it will increase the cost of debt as such alternative forms of investment such as equity become a more desirable form of investment though historically equity finance is seldom used for financing long term objectives due to the fact that it can be very costly and will dilute shareholder control.  

For the past two years the prediction of an impending recession has loomed though this hasn’t happened it is the prediction of many economists that recession is not far away. If such prediction is proved correct history dictates that in times of recession consumers will be more price sensitive and less likely to purchase high priced goods due to a lack of disposable income. As such consumers are more likely to purchase products that are located in part 1, 2 and 3 of Bowman’s strategy clock Additionally  the events of September 11th and The dot.com bust coupled with the worry of an impending recession have resulted in firms adapting a far cautious and consolidativive approach as opposed to a high risk entrepreneurial approach with regard to investment decisions.

Further evidence of an impending recession is illustrated in the figure below which shows that generally the u.k experiences recession during a similar period of the u.s and Japan who have both recently suffered recession. The internet article (fortune, 2002, Is This Where the Economy Is Heading,) also states that a worldwide recession is likely to begin within the next year

(Source Sloman 1999)

1.2.3 Socio Cultural Future

Current trends suggest that over the last 10 years there has been a large rise in the popularity of bulk buying with food items in particular being bought in bulk. Additionally there has been a increase in demand for convience food such as sandwiches and microwave meals.

The BBC online article Discount shopping takes off Tuesday, 7 May, 2002, 06:00 GMT 07:00 UK reports of the work of retail analysts Verdict which found. that low priced apparel is a rapidly growing sector Verdict concluded that the "value clothing" sector now accounts for 15.1% of total clothing sales and could account for 21.9% of the clothing market by 2006 if its growth continued at its present level

The impact of September 11th in conjunction with the rise of charity iniatives suggest   that many people are likely to adopt a more sympathetic view to world problems and thus greater importance is likely to be placed on corporate responsibility and charity iniatives. Though Tesco and Gap practices in the past have been deemed irresponsible and yet their profit was not adversely affected.

1.2.4 Technological

The ever-increasing popularity of the Internet and the advent of broadband technology has resulted in many firms now offering online services allowing for home shopping.

The use of intricate computer systems has enabled firms to automate and accelerate many procedures previously done by hand. Linked system have also enabled easier account collection, statistical analysis and identification of demographic data

1.3 Life cycle stage

Life cycle stage is of great importance whilst considering corporate strategy in broad terms food and clothes do not conform to the life cycle stage as they are necessities and will always be in constant demand.

Though in terms of product life cycle stage does account for corporate strategy. Due to the diverse nature of products it would be futile to evaluate each product now though firms must be aware of where there products lie in order to cater strategies accordingly.

Due to the fickle nature of the fashion industry life cycle stage can be considered short as demand can be extremely erratic as each season change dictates a change in dress as such dynamic product designers such as George Davies are vital to the success of clothing retailers as designs which lack quality and are not in line with current trends are ultimately destined for failure during periods of economic prosperity

1.4 Customers

Due to a competitive environment Customers appear to be major benefactors of activities. Firms tend to be adopting price-led or service-led approaches.

Asda for one appear to be attempting both. As such customers have greater choice than ever before.

Market intelligence is commonly used within the industry, price checks and retail reports by “which” are commonly examined and decisions are made to what extent a firm can rival its competitors options. Further evidence of customer power is indicated in the table below. The table lists conditions which suggest that customer power is evident and firms are fiercely competing with each other, evidence of such practice appears to be very evident and suggest a competitive market.

Table 1.4

(Source adapted  lynch 200)

Compettion

Competition within supermarkets and clothes retail outlets appears oligopolistic in that 3-6 firms control a large share of the market.( indicated in money observer 1999 suggests supermarket retail share of more than 50% is shared by just 5 firms) As mentioned previously the competition Commision is keen to encourage competition. Major price cuts and service led practices(nappy changing, extra staff, well designed premises) and investment in innovations e.g ( M&S investment in smart chip clothes and redesign of premises) all indicate that competition is fierce.

1.6 Critical success factors

The critical success factors of the industry in which M&S operates are outlined below.

Porters 5 forces model suggests that when buyers exert a high degree of choice and are able to choose from a variety of substitutes product quality, price, product differentiation and branding are likely to become prevalent factors as concerns the success of a firm. As such this is likely to be common within the market M&S operates as there is a high degree of competition incurred in direct and indirect forms meaning buyers (customers) will have a high degree of choice thus firms must cater to this in the manners outlined above. Additionally the fickle nature of the fashion industry i.e. product life cycle is low due to ever changing fashion trends means that a quick and efficient response to customer demand can critically affect the degree of success a firm experiences. Additionally an awareness of future environmental conditions can be of vital importance to a firm’s success as the importance of price, product quality branding and differentiation can vary greatly within different circumstances. I.e. during a period of recession price becomes a prevailing factor, which is likely to dictate customer choice. Whereas during a period of prosperity quality and brand become dominant factors.

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2. Analyse and evaluate Marks and Spencer’s strategic resource capability

2.1overview

The capability of any organisation is fundamentally determined by the separate activities, which it undertakes in designing, producing, marketing, delivering and supporting its products or services. It is an understanding of these various activities and the linkages between them, which is crucial when assessing strategic capability. An organisations resources are not confined to those, which it owns.   Strategic capability is strongly influenced by resources outside the organisation, which are an integral part of the chain between the product design, through production ...

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