Marks & Spencer Plc. Group structure and financial performance.

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Introduction

MARKS & SPENCER PLC1 In 1985, Britain's best-known retailer was the subject of a gusher of a book: Marks & Spencer: Anatomy of Britain's Most Efficiently Managed Company. Nowadays, any book on the 115-year-old food and clothing chain would need a new title. Comedy of Errors is more like it. Businessweek - 18.10.99 Introduction Marks & Spencer Plc (from now on M&S) is an international retailer with 718 locations across 34 countries. The group sells clothing, footwear, gifts, home furnishings and foods under the St. Michael trademark in its chain of 294 stores in the United Kingdom. Approximately half of the group's overseas stores are franchised to local partners. The group also owns the clothing retailer Brooks Brothers and the Kings Super Markets chain in the United States of America. Direct mail helps M&S meet the core objective of providing customers with wider, easier access to their products such as home furnishings, flowers, hampers and wine. The financial services comprise of operations of the groups financial services companies providing account cards, personal loans, unit trust management, life assurance and pensions. Retailing accounted for 96% of fiscal 2000 revenues and financial services, 4%. The company was always considered to have a great management support that helped in its growth. But the last years, M&S's managers seem to fail on their strategic decisions, leading the group to lower and lower sales and profits. The share price is also dropping and shareholders feel insecure for the future (figure 2). Group structure and financial performance The group's performance measures for the year ended at 31 March were disappointing (figure-5). The return on equity ratio and the earnings per share were zero as the company had only £1.3m profit this year. For the same reason, the dividend cover was also zero. Last year the dividend cover was 1,0p as the company paid the shareholders all its profit. For doing so the company had to cut the dividend from 14,4p to 9,0p.

Middle

3.63 3.83 3.83 3.75 Mean Recommendation Conversion Table 1.0 = Strong Buy 1.1 thru 2.0 = Moderate Buy 2.1 thru 3.0 = Hold 3.1 thru 4.0 = Moderate Sell 4.1 thru 5.0 = Strong Sell New Group Strategy and Structure Following a wide-ranging and detailed strategic review of its business, the Board of M&S announced in March 29 of 2001 significant changes to the Group strategy and structure. The highlights of this new plan are: a) Total focus on UK retail The Company will return to selling only own brand products and brands exclusive to M&S so it can guarantee customers the quality, value and service they have come to expect. Central to the recovery plan is the delivery of significant improvements in product appeal, availability and value thereby rebuilding the relationships with core M&S customers. > Recovery plan for Clothing The Company has plans to regain the confidence of its customers in the quality and fit of its clothing. It will sharpen pricing by rebalancing the price architecture, extending the range of entry-price merchandise and communicating this clearly to customers. > Expansion in growing product areas such as Food, Home and Beauty M&S Foods continues to perform well and has earned customers' trust for providing quality, innovation and convenience. The business is a key platform for future growth and the Company is considering opportunities to expand its reach through new locations and selling channels. The Home business is growing strongly, with home furnishings and gifts the fastest growing product areas. Beauty, albeit relatively small, is also growing rapidly. Both of these areas offer promising opportunities for development and will be expanded. > Acceleration of store renewal programme Accelerate Store Renewal Programme: M&S will accelerate the rollout of the successful elements of its new concept format under a plan to refurbish more stores faster and at lower cost. Two-thirds of its retail space (120 stores)

Conclusion

At the heart is a determination to restore an unquestioned reputation with our customers for quality, value, service and innovation. By creating a simpler more focused organisation we will be able to get on with what we do best, to be better positioned to deliver faster recovery and, in time, seize new opportunities both in the UK and abroad. We are confident that both customers and shareholders will benefit as a result. We recognise these changes will be painful for some of our people. We very much regret this but the decisions have not been taken lightly. They are essential to building a stronger future for Marks & Spencer." Vandevelde conceded that with the benefit of hindsight he should have taken radical action earlier. "It is always easy in hindsight to say ´had I known six months ago what I know now, yes I would have done it earlier´. But it does take time to understand thoroughly the strategic strengths and weaknesses of a company of the size of M&S" he said. QUESTIONS 1. From the point of view of an analyst: i) Identify the main strengths and weaknesses of M&S Plc. ii) Which strengths and which weaknesses do you believe that the strategy plan announced the 29th of March of 2001 took more into account? Forecast a P&L and a Cash Flow Statement for the year 2002. iii) Do you agree with these measures? 2. From the point of view of an investor: i) Would you invest in shares of M&S Plc? ii) What would you do if you already were a M&S's shareholder? 1 This case study has been written by Georgios Karaliopoulos and Oriol Amat, Department of Economics and Business, Universitat Pompeu Fabra (Barcelona). Some data relating restructuring costs have been forecasted by the authors of this case. 2 Before taxes and exceptional items made predominantly to provide for the costs of corporate restructuring, announced on 29 March 2001. 3 M & S has 2.867.384 thousands of shares owned by 403.847 shareholders. 4 Graph taken from: www.hemscott.com 5 Graph and data taken from www.multex.com 1

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