Rise and fall of marks and Spencer.
Rise and fall of marks and Spencer
Introduction
When Michael Marks established a penny bazaar in mid 1880's, it was the beginning of a British success story that no one could have predicted. Marks & Spencer Group (M&S) has been a legendary organisation for over a century. However, after years of success, the retailing giant showed an alerting signal.
This study provides a comprehensive and critical evaluation of the changes at M&S from mid 1980s to 2002 and the results of its management's endeavours. This is undertaken by scanning through the history of M&S and its background. Strategic tools like SWOT analysis, PEST analysis , Porter's five model industry analysis , BCG Matrix and the Value Chain analysis are used to evaluate the whole spectrum of factors that contributed to the rise and decline of Marks and Spencer. An attempt is also made to suggest future strategies to be adopted to regain the lost ground.
M&S Background
The company was started in Leeds in 1884 by Michael Marks , a Russian immigrant. Ten years later , Tom Spencer joined partnership with Marks and M&S was born (Beaver, 1999). Their partnership had all the components of success, uniting entrepreneurial flair with the commercial expertise required to create a string of 'Penny Bazaars' (Christopher, 2001). In the 1920s, the business exercised a revolutionary policy of buying directly from manufacturers rather than going through wholesalers. These unique relationships with suppliers gave the business an advantage and convenience that few of its competitors could match. The growth of M&S was fast and in 1926 it was listed in the London Stock Exchange as a public company (Whitehead, 1994). Two years later, Simon Marks took over the reins of M&S from his father. He introduced the "St. Michael" brand , a symbol of excellence and quality. In 1930s, M&S' flagship store was opened at Marble Arch, London. Afterwards, food departments, which sold canned products, were introduced into the company. Moreover, M&S started to made forays into the foreign markets in 1970s and had a mixed success in its foreign operations. It opened its first overseas store in Canada in 1973 and then the expansion continued in Europe (Daniels, 1995). It also exported its St. Michael brand merchandise to franchised stores in seventeen countries.
SWOT ANALYSIS
This environmental analysis generates information which is structured and directed in a meaningful way for marketing and strategic planning process with respect to the present and anticipated situations. The internal environments are explored using the strength and weaknesses where as the opportunities and threats are analyzed for the external.
The detailed factors that characterizes the strengths , weaknesses , opportunities and threats are listed as Appendix I.
PEST Analysis
Through the PEST analysis the external macro environment is explored.
Here factors pertaining to the political, economical socio-cultural and technological aspects are looked into.
Political
The stability of the present labour government, its taxation policies, anti monopolistic policies, the employment laws and the formation of the competition commission so on are having a direct impact on the retail industry as well as M & S. Mergers and acquisitions are not encouraged and hence thoroughly investigated. Because of the presence of the strong trade unions the companies are not in a position to introduce " operation simplification " just as the legendary Marks could introduce it in Marks and Spencer, immediately after the Second world war.
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's bargaining power. Farmers in particular have been the subject of such exploitation though the governments competition commission has since attempted to rectify the situation by introducing a code of practice (BBC online 2001, Supermarkets code 'too weak' )
Economic
Corporation tax is currently 30% for large firms. Tax credit is allowed for research and development. Inflation and interest rates are at reasonable level with positive indicators in GNP growth rate. Even though recessionary trends are speculated about its drastic effects are not yet perceptibly seen in the economy. Of course the economy show signs of weakening.
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 large though this has not happened. Many economists predict an imminent recession. If that 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.
Socio-cultural
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. ...
This is a preview of the whole essay
For the past two years the prediction of an impending recession has loomed large though this has not happened. Many economists predict an imminent recession. If that 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.
Socio-cultural
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. Moreover there has been a increase in demand for convenient foods such as sandwiches and microwave meals.
The impact of September 11th in conjunction with the rise of charity initiatives 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 initiatives. Though Tesco and Gap practices in the past have been deemed irresponsible and yet their profit was not adversely affected.
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
Porter's Five Model Industry Analysis
The widely accepted and commonly used Porter's five model industry analysis rests upon the industry dynamics which in turn are influenced by the forces of macro and micro environments.
This analysis is not one of activity alone but an on-going process. These forces exercise relative power at a point of time and it is really important to identify which of these five forces are the key forces at operation and evolve a strategy to position itself to take advantage of the opportunities and over come the threats.
Because of the dynamic nature of these forces the analysis is to be repeated on an on-going basis so as to deprive of the potential competitors to overtake , regain , sustain and improve the market share and growth as the situation demands.
The threats from the New entrants , buyers' and suppliers' bargaining power , substitutes and competitive rivalry are analyzed and shown in Appendix II
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.
The Core Competences Critical Success factors and Competitive Advantage
Core competences arises from the unique and distinctive way that M & S builds, develops , integrates and deploys its resources and competences. It can be evaluated like this.
M & S has a clear customer focus. Because of the inbuilt , robust competences the uniqueness of M & S cannot be easily imitated. With regard to its flexibility this is one area in which M & S did not respond timely in adequate measure. They lagged behind other competitors in adapting to the changes in the market or industry conditions. The company has paid a bitter price for this laxity.
The extent to which value is added to the product/service is quite is good.
Finally, with respect to sustainability M & S could not retain the tempo of its momentum and march even though it is still the market leader.
The critical success factors and core competences are pictorially depicted and is shown in Appendix III.
Competitive Advantage
M & S could attain competitive advantage by developing and implementing these distinctive resources capabilities and competences. The strategies adopted after the great fall of 1998 enabled M & S to regain its lost territory.
The competitive advantage of M & S can be explained in terms of its reputation for quality ,its special relationships with its suppliers and its customers. M & S has a very exacting but mutually profitable relationship with the suppliers.
It demands high quality at reasonable cost and flexibility in return for large volume of business. Its relationship with the customers is based upon its reputation for good service , refunds , exchange of goods and high quality value for money goods. Real competitive advantages take longer to build and last longer. M & S has the best brands on high street. The customers associates with the company with dependability and value for money. The employees are always a privileged lot resulting in their high involvement and commitment. In the end result it has a performance that is superior to most of its high street competitors.
BCG Analysis.
The Boston Consulting Group (BCG) growth-share matrix is used to evaluate the current position and future potential opportunities for a service with in particular market or industry in order to establish the appropriate marketing strategy
(John L.Thompson , 1993).
The evaluation of Marks and Spencer's current position can be undertaken as
> UK Retail
> Financial Services , and
> International Franchise
For UK Retail, the current position is shown here.
High
Market Growth
Low
High Low
Market Share
This can be well explained by looking at the position of each individual products.
Food Women's wear
High
Men's wear
Market Growth Home
Beauty Lingerie
Low
High Low
Market Share
Women's wear: Reverted back to the strategy to concentrate on quality and the customer perception. Very perceptible change was introduced in the improvement of women's wear based on product segmentation. For example , per una collection targeting younger customers through the perfect ranges , to the classic shops for the more traditional customer and also the improved product appeal , quality & fit.
Men's wear: Men's wear took a significant turn with the introduction of "Blue Harbour , a collection of casual wear". It accounts for most of the men's wear sales.
Lingerie : No. 1 choice for lingerie on the High Street and sells to the one third of the nation. Hence overall clothing performance has achieved growth in women's wear , men's wear and lingerie resulting in an increase in overall market share.
Food: Food business generates around 45% of sales in UK. This has unique strengths and has a leading position in fastest growing sectors of UK food market. Performance of the food is constant and maintaining the market share in a competitive environment with the strategy being
> constant product innovation
> improvement in quality
> 100% own brand
> unique food
> command over supply chain etc...
Home furnishings : It has applied some of the principles of segmentation in clothing in home furnishing also. Like clothing home furnishing business is positioned in the middle market providing great quality , stylish furniture at affordable prices. But unlike clothing market , there is no clear market leader.
Home business is growing with the creation of 27 home concept stores within larger stores .
Beauty, flowers and gift : Marks & Spencer offers an exciting selection of flowers, gifts for all occasions. There is a sales growth in all these areas.
Financial Services
High
Market Growth
Low
High Low
Market Share
When compared to other sectors, finance service is doing quiet well. The performance has marginally reduced in 2002 when compared against 2001. This is due to the acceptance of credit cards, which had a negative impact on the usage of their own cards. This in turn adversely affected the personal loans portfolio from which it was getting most of the sales. But by the end of Sep 2002 UK sales has picked up with the key drivers being store card and personal loans.
International Franchise
High
Market Growth
Low
High Market Share Low
Marks and Spencer closed its loss-making operations in Continental Europe and sold US men's wear retailer Brooks Brothers. Even though they are unsuccessful in selling King's Super Market in their first attempt, they are persistent with that policy. The wholly-owned stores in Hong Kong were turned to franchisees. However the company retains its business in Republic of Ireland and is growing fast with good profits.
Value chain analysis
Value chain analysis is a systematic way of studying the direct and support activities undertaken by a firm. From this analysis should arise greater awareness concerning costs and the potential for lower costs and for differentiation (Thompson, 1993).
These activities are divided into two stages, in each individual stage, link all activities together, see how such activities contribute to M&S success, decline and regain.
The Value chain analysis chart is given below:
FIRMF
Support
activities
Primary activities
First stage: Growing stage before 1998
Main activities:
Infrastructure: ? Top-down management
HRM: ? Make employees 'fit in' and become part of
family of M&S
? Promotion from inside
? Staff were treated better and paid well
Technology: Encourage suppliers to use the most modern and
efficient production tech
Procurement: ? A central buying office
Inbound: ? Products from local suppliers
Operation: ? Creating a sense of comradeship and close-knit family atmosphere
? Unique working relationship with suppliers to
ensure the high standards of quality control
? Simple operation procedures
Outbound: ? High and consistent quality
? Attractive goods
? Reasonable prices
Marketing
and Sales: ? "St. Michael" logo as a brand of quality
? Focus on middle-class customers
? Simple pricing policy
Service: ? Friendly helpful service and greater shopping comfort
? Foster good human relations with customers, suppliers and staff
All activities within value chain chart are not separate. They are interlinked with each other. All these different activities linked together as a whole, to make it a strategy which other competitors cannot imitate.
For strategy management, the most important point is to manage the change. The external environments change rapidly. As a result, M&S should change its strategies accordingly. Furthermore, the huge achievement of 1997 and 1998 delayed the change of reforms. So, If M & S fails to respond to those changes, the activities that are positive yesterday will play a negative role today.
Second stage: Decline and Regain stage after 1998
Main activities:
Infrastructure: ? Hired a chairman with a high salary from outside
? Focus on customer oriented strategies
? Move away from bureaucratic culture
? Focus on core business
HRM: ? Senior managers from outside
? Reduce the size of middle-level managers
Technology: ? Adopt Internet shopping
Procurement: ? Break down the old system of central buying
Inbound: ? Products 100% from overseas
? More staff
Operation: ? Splitting into three: UK, Overseas and Financial
sectors
? Accountability for store managers
? Withdraw from overseas market
Outbound: ? More customized products
? A more clear brand image
Marketing
and Sales: ? An organization-wide marketing department
Large-scale promotional campaign
? Sales
Service: ? Make stores appear more friendly to customers
? Become more customer focused
Structures have to follow strategy. The manager as chief strategy-maker and chief strategy-implementer (Thompson & Strickland, 1993). Within the activities after 1998, the change on infrastructure is the most significant activity.
A firm's infrastructure generally supports the whole value chain (Whittington, 1993). In Nov. 1998 M&S change its CEO. Furthermore, on Jan. 2000, M & S appointed a new executive from outside. That was the first time for M & S to implement such activities that directly affected its culture and structure.
In 2002, the company has started regaining its lost horizon. The achievements of 2002 were not only contributed by the activates of 2002, but also contributed by the activities of the past years. This shows that while implementing strategies accurate forecast for the market changes in advance should be made to be followed by concrete action.
Evaluation of new strategies :
Restoring reputation would take time. It will be quite difficult to entirely recover the lost luster and attain a level of performance and profit that were the hallmarks up to the period 1998.
The market repositioning might damage the loyalty of its main customers, the middle class. Buying from overseas can reduce the costs. But at the same time it might damage the quality image that goes with the company of past decades;
Sales can get the money back quickly. But it might shake the confidence of its loyal customers.
Implementation of Strategies
The implementation of these strategies can be broadly analyzed in terms of the changes in leadership and culture , technology adopted, modified price policies and innovations introduced.
Leadership and culture.
Buying decisions, once dictated by the head office, are now set at individual stores and based on local tastes. Such an approach indicates that previous executives might have attempted to retain a power/role culture even though , due to the vast nature of the company , such an approach appears to be futile as leaders are unable to retain vast amounts of power as there are too many elements which need to be addressed. As outlined above M&S has adopted a task culture and has given greater freedom to local managers. Motivation is likely to be enhanced as management's success and failures can be analyzed which can lead to greater opportunity for promotion and identification of areas that need improvement.
The appointment of younger management teams is likely to improve product quality as these members are likely to be more in touch with current trends. Also being a company selling more products for women it should try to bring more female executives in top management. To fix M&S, the 50-year-old Belgian executive has ushered in a younger and hipper management team, replacing all of its senior managers as well as board members, whose long tenure incited unfavorable environments.
Technology
M&S have access to integrated systems provided by IBM that allow statistical analysis of customer demands , habits and trends enabling M&S to develop strategies in tune with current trends. Marksandspencer.com also provides online service through which it is trying to extend its reach. Server reliability is far greater as they invested in high quality providers. Marks and Spencer online also offers 15% off if one reserves the summer collection in conjunction with free delivery. Such a move is an extremely intelligent ploy, as it will enable M&S to identify its popular and unpopular items, which could prioritize the purchase of stocks.
Price
In order to offer low priced products it has slashed nearly 4,000 jobs, shuttered 38 money-losing stores in Europe, and spun off poor performers like clothing retailer Brooks Brothers and Kings Super Markets Inc. The decision to sever longstanding ties with British suppliers and shift three-quarters of all apparel production overseas has boosted clothing margins.
Innovation
Evidence suggests that , in terms of initiative and innovation , had in the past lagged behind competitors and had continually followed market leaders. The poaching of designer George Davies from Asda also illustrates its lack of originality. However , this move gave positive results and many attribute its revival almost solely due to George Davies's Per una range. Previous experience of failure might also have acted as a catalyst.
The David Beckham link up and the use of George Davies open network are testament to the fact that M&S has learnt from the past and is now currently developing greater innovative ideas as opposed to just following the leader.
Future strategies
on the basics of the analysis undertaken and on the strength of the inherent competencies, the company can regain its lost charm and market position by adopting to the following strategies.
* Merchandise ranges more accurately tailored to local demands
* Accurate staffing models to predict demand
* Training effort on customer service
* Decentralized administration
* Improved analysis of the competitive environment
* Better informations about buying decisions
* More focused and proactive communication
* Greater clarity in presentation and display
* Clear customer targeting
* More competitive prices
* Improved promotional techniques
* Introduction of more products in tune with the demands
* Improved customer service
* Frequent update of store fittings and formats
Conclusion
The legend of M & S is not moulded by the strength of the strategies implemented by the company but by the merit of the competitive advantage it had gained advertently or inadvertently. People changed , market changed but M&S forgot to change with times. The competitors spotted the generational opportunities and took advantage of them. Even then the great giant was in slumber, till it was sledge hammered. Now it has to rediscover itself and resort to strategies more focused on customer , market , quality , price and aspirations of the present times.