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FdA Fashion Marketing & Promotion Online Unit: Fashion Business Management
A Case Study Analysis Report of Marks and Spencer Plc Emma Bunce
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Table of Contents Unit: Fashion Business Management................................................................................1 Table of Contents.................................................................................................................2 Executive Summary.............................................................................................................4 Introduction & Context........................................................................................................4 Threat of Entry.................................................................................................................6 Threat of Substitutes........................................................................................................7 Power of Buyers ..............................................................................................................7 Power of Suppliers...........................................................................................................7 Competitive Rivalry.........................................................................................................8 Financial Performance.........................................................................................................9 Current Strategic Position..................................................................................................11 Strengths .......................................................................................................................11 Weaknesses....................................................................................................................11 Opportunities..................................................................................................................11 Threats............................................................................................................................12 Price Architecture..........................................................................................................13 Strengthening UK Offer.................................................................................................14 Expanding International Trade.......................................................................................14 Investing in M&S Direct................................................................................................15 Plan A and Cost Control................................................................................................15 Conclusion.........................................................................................................................16 APPENDIX I: PPD STATEMENT...................................................................................18 APPENDIX II: REFERENCES.........................................................................................20 Accessed 16th October 2009.............................................................................................20 Mintel Report, 2009 Department Store Retailing - UK - January 2009........................21 Marks & Spencer. Mintel, 2009 ....................................................................................21 APPENDIX III: PESTEL..................................................................................................22 Political .........................................................................................................................22 Environmental ...............................................................................................................22 Technological.................................................................................................................23 Economic .....................................................................................................................24 Legal ..............................................................................................................................25 APPENDIX IV: PORTER’S 5 FORCES..........................................................................26 Threat of Entry...............................................................................................................26 Threat of Substitutes......................................................................................................26 Power of Buyers ............................................................................................................27 Power of Suppliers.........................................................................................................27
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Competitive Rivalry.......................................................................................................28 APPENDIX V: FAME GRAPHS......................................................................................29 M&S Gross Profit..........................................................................................................29 John Lewis Gross Profit.................................................................................................30 APPENDIX VI: FAME GRAPHS....................................................................................31 Liquidity Ratio...............................................................................................................31 The Liquidity Ratio is M&S’s ability to pay its obligations such as short term bank borrowings. Medium term loans are used to finance fixed assets such as its stores. Then the group also has retained profits to meet shortfall in funding of assets. The above graph shows the range and ratio at which M&S is financing these obligations. The level and maturity of debt is flexible to match the life of asset with the tool used to finance it. .......................................................................................................................32 M&S’ Stock Turnover Graph........................................................................................32 APPENDIX VII: SWOT ANALYSIS...............................................................................34 Strengths........................................................................................................................34 Weaknesses....................................................................................................................34 Opportunities .................................................................................................................35 Threats............................................................................................................................35 APPENDIX VIII: STRATEGIC POSITION....................................................................36 Investing in M&S Direct................................................................................................36 Plan A and Cost Control................................................................................................36 APPENDIX VIIII: MINTEL REPORT.............................................................................38 Department Store Retailing - UK - January 2009..........................................................38 Marks & Spencer ..........................................................................................................38
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Executive Summary Marks & Spencer is arguably the most recognized British retail brands having an estimated 885 stores across more than 40 countries, which was very successful in term of profitability and market share until the early 2000 when its fortune turned to decline. This report looks into the competitive strategy behind it’s recovery since the appointment of Stuart Rose in 2004 and the challenges it has had to face along the way and suggests the future competitive strategy to sustain competitive advantage in current scenario.
Introduction & Context Marks and Spencer is one of the largest retailers in the UK with a reported 21 million people visiting its stores each week. They have been providing clothing, homewares and upmarket food since its inception in Leeds in 1884 when Michael Marks, a Russian born Polish Refugee opened a Penny Bizzare in the local market. There he sold nails, screws, soap and luggage labels and his stall was adorned with the slogan 'Don't ask the price – it's a penny' and a British shopping institute was born. Marks and Spencer made its reputation in the 20 th Century by providing affordable and stylish clothing. Through a century of adapting to every change of popular fashion Marks and Spencer have tried to find clothes to match the public appetite, from the floral dresses of the 1940s to the 60s 'daring' mini-skirts.
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M&S was seen as a reliable, if unexciting, source of office and casual wear. Trips to M&S to buy school uniforms heralded the end of summer for many generations of children and also the store where most Britons bought their underwear including, famously, two former prime ministers - Margaret Thatcher and John Major. Then it all went wrong, in 1999 it announced that its profit had almost halved over the previous year, down from £1.114bn the previous year to £655.7m (BBC, 1999) Their St Michael branded clothing failed to excite teenagers, the Club 18-30 crowd and thirtysomethings. Customers instead frequented the likes of Next, H&M and Topshop, who’s more contemporary and on-trend clothing targeted younger audiences, whilst M&S failed to adapt and continued to do the same old thing. Their shortfalls were not isolated to what was hanging on the rails. Their store layouts and displays became tired and outdated, lacking excitement; retail analysts said M&S stores were too big, too brightly-lit and too bland - and could not compete with bolder, trendier formats like Next or Monsoon. As a reaction to these results the company replaced their famous (but outdated) St. Michael brand with an expanding range of sub-brands; they managed to entice George Davies from Asda (where he created the stylish, affordable and successful clothing brand ‘George’), to produce their ‘Per Una’ range which supplemented their Autograph, Limited Collection and Classic ranges, along with Blue Harbour for men. M&S also responded to the e-commerce boom and moved into the online shopping market and improved their store formats, including the roll out of ‘Simply Food’.
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In addition to the internal problems that the company has there are many external challenges (see Appendix III for the PESTLE analysis and Appendix
IV for Porter’s 5 Forces). The current UK market is still in recession, unemployment is high and consumer confidence is fragile as a result people are not spending as much at the checkouts. This is the same situation that all retailers face and it’s the ones that respond and adapt best which will come out of the downturn fastest. The recession has meant that many people’s disposable incomes have decreased. As a result, consumer spending has slowed down in the face of higher inflation and the job market uncertainty. With M&S renowned for selling higher quality items which by their nature are more expensive, they run the risk of consumers seeking cheaper alternatives.
Threat of Entry The recession has reduced the risk of new entrance of traditional high street retailers to the market; however, as per Appendix IV (Porter’s 5 forces) M&S are under threat from online retailers and the ever increasing product lines of the supermarkets. M&S has recently responded to the recognition that they must embrace online shopping otherwise they run the risk of loosing market share to better developed competitors. Trading online incurs lower overheads such as the cost of premises and staff and therefore allows competitors into the market. A prime example of a successful online brand is the speed at which ASOS.com have grown since…. Supermarkets have now expanded product ranges, which include clothing and entertainment as well as homewares being available on the shelves. This poses a big threat to department stores. They benefit from an established distribution and store system and a loyal and regular customer base. 6
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Threat of Substitutes Due the number of competitors in the market the threat of substitutes is high. Whilst M&S would see the likes of John Lewis and Waitrose as direct competitors the difficult economic times also mean that customers are more likely to seek cheaper alternatives within he likes of Next or even the Supermarkets.
In
addition, historically the company has been slow to react to the fast paced changes in fashion and with lead times getting shorter, competitors are quicker to react and provide alternatives to those seen on the runway quicker than ever before.
Power of Buyers With the many retailers available, buyers are able to shop around. M&S must maintain the trust of their buyers by consistently supplying high quality garments to stop customers from going elsewhere. The power that the buyer has means they can drive down costs with their suppliers. Suppliers are aware that they could easily switch to another supplier; therefore M&S must continue to offer buyers the best value for money they can offer.
Power of Suppliers M&S is not as dependent on suppliers as other stores as it mainly sells own branded products. This means that it largely buys raw materials and not finished goods, which is favourable for margins (M&S, 2009). Also, due to their long standing reputation, they are able to negotiate large discounts with suppliers.
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Competitive Rivalry M&S is a retailer that sells food, clothing and home wares. Therefore it faces competition from both supermarkets such as Tesco, Asda and Sainsbury’s and clothes retailers such as Next, and John Lewis. Porter (1985) wrote that companies pursue one of three generic strategies: low cost, differentiation or hybrid. M&S prides itself as being a higher quality valuefor-money brand. However, with the recent rebranding and cutting of prices for clothing, it risks devaluing the brand in the market where specialisation is becoming increasingly important. M&S Financial has competition from Banks and other financial service providers.
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Financial Performance Fame reports show that M&S’ Turnover from 2004 has risen from £8,301,500m to £9,062,100m in the last 5 years which is a steady increase of a little over 9%. However, Profit (Loss) before taxation has dipped by 5.2% from £745,300m in 2004 to £706,200m in 2009. The highest profit stood at £1,129,100m in 2008, dropping almost 38% year on year. Of course the recent recession has played a rather large part in this dip; however the turnover between 2008 and 2009 has risen by a little under 0.5% from £9,022,000m to £9,062,100m showing that things are very slowly improving for Marks and Spencer. Compare this to John Lewis and it is clear that Marks and Spencer is ahead of the competition. Figures show that John Lewis’ Turnover currently stands at £6,267,200m (Jan 2009), £100,000m less than it’s highest turnover in 2007 and almost 31% less than that of M&S. Profit (Loss) in 2009 stands at £281,000 compared with £706, 200 by M&S. However, looking at Gross Profit year on year, graphs clearly how that John Lewis has had a steady increase whilst M&S financials have been turbulent. (See
Appendix V for graph comparisons.) For M&S this could be down to changes of the board, especially the difference in 2004 when Stuart Rose took the position of CEO, creating many changes of structure to the business With the updated and vastly improved Website, Marks and Spencer are now able to offer its products to overseas customers. This has improved the overseas turnover from £369,500m in 2007 to £897,800m in 2009 – almost 3 times the previous amount. However, with the cost of sales being that much higher at £5,6900,200m (£5,246,900m in 2007) this leaves the gross profit level in 2009 at £3,371,900m, just 0.9% greater than that in 2007 (£3,341,200m) Marks and Spencer appeared to have its strongest year in 2008, just before the current recession, with its Profit (Loss) after tax standing at £821,700m. This took a dramatic fall by almost 38% in 2009 with its current Profit (loss) after tax being
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ÂŁ506,800m. Advertising has made a huge difference to a company like Marks and Spencer who, in previous years did not feel the need to advertise along with its competitors such as Next and John Lewis. With the UK taking a U-turn in the current climate and Marks and Spencer following new directions in key areas and listening to its customers, we may see a steady increase once again over the coming years. For further graphs looking at liquidity ratio and stock turnover graphs for M&S please see Appendix VI
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Current Strategic Position
Although M&S face many challenges, both internally and externally they still gain a competitive advantage over many competitors. That is not to say that they do not still have room in which to grow (see Appendix VII for the SWOT analysis)
Strengths •
Shift to shoppers buying quality but less quantity. With 72% of its clothing range within the ‘better’ or ‘best’ price brackets they are able to harness there high levels of customer loyalty.
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Aggressive marketing using well known names such as Twiggy, Myleene Klass and more recently Take That, memorable advertising, especially at Christmas time when press are poised to review the next ‘this is no ordinary Christmas’ advert.
Weaknesses •
Core demographic being of an older generation, M&S had been seen to be forgetting those who have been loyal over the years and aiming at a younger audience. Run the risk of losing this loyality to competitors such as Matalan and Primark offering lower prices in this time of recession.
Opportunities •
Importing new, cheaper fabrics and other materials form the developing markets of China and India.
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•
However, their ‘Plan A’ initiative is looking at a more ‘home grown’ approach to its products creating many opportunities due to the ever growing culture of sustainability and healthier living
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New and improved website; ‘Shop your way’ is also a great way in which to attract new customers, especially those overseas.
Threats •
Competitors such as John Lewis with a similar demographic.
With ever growing competition, M&S created a new strategy. This involved focusing on the core areas of quality, value and service as well as innovation and trust. Along with the use of the ‘BIG’ group (Business Involvement Group) – comprising of a network of elected employee representatives voicing staff opinions on the business – the board put together a new campaign. 'Your M&S' helped customers to connect with the business. The process has three main areas. •
developing products that customers want
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improving stores
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Providing excellent customer service.
M&S has always been known for its high level of customer service, therefore strengthening teams at all levels, from shop floor to management is key area of competitive advantage. Since the appointment of Stuart Rose in 2004, a programme called ‘Lead to Succeed’ has been introduced. This programme targets the development of the 300 most senior M&S people. It is designed to identify and develop people for succession and is built around our M&S brand values – Quality, Value, Service, Innovation and Trust. (M&S Annual Report, 2009) 12
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Training helps to improve efficiency and also motivates employees, maintaining loyalty to the brand. By having well trained and motivated staff, Marks and Spencer has developed a competitive edge over its rivals. The business has recognised this to be an investment for the future.
Price Architecture The price architecture used within the company can give a great advantage over competitors. The strategy, which has different levels of pricing and ‘value’ – Good, Better and Best - reflects that of a supermarket with it’s ‘basic’ to ‘finest’ ranges and is not normally known within department stores and clothing retailers. With this strategy M&S are able to target a wider audience both online and in store without compromising its brand values. Although this new price architecture gives M&S great advantage, they are still competing with other retailers such as John Lewis and Next on the quality of its clothing. This structure is also used within the food department of the company, with special promotions on a regular basis such as ‘Dine in for £10’
The M&S Annual Report 2009 states that leadership and governance go hand in hand within a successful company. Good governance can be achieved with a strong relationship between the management and the board where trust, challenge, a common goal and good information flows between them and further onto the shopfloor. M&S believe that with Stuart Rose at the helm they are taking the business in the right strategic direction, with their leadership being clear and well-communicated. The report states that the Board needs to:
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•
Demonstrate independence to bring fresh perspectives and hold management to account;
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Seek full information to form views, question management and take strategic decisions; and
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Act responsibly to make sure the governance is robust and the reputation of M&S is protected in everything they do.
Some of M&S strategic thrusts have been outlined within the company’s annual report. Looking at 5 key areas; Strengthening UK Offer, Expanding International, Investing in M&S Direct, Plan A and Cost Control and Returns to Shareholders.
Strengthening UK Offer Within the UK M&S reviewed its ranges of womenswear in order to segment the brands in line with its customers whilst maintaining quality and value. Each brand within the brand offers something unique, addressing different ages, style needs and price points; such as the Classic range for the more mature customer and the Per Una range for the younger generation.
Expanding International Trade Internationally, In 2007/08 M&S made changes to its business ‘ownership’ model. Expansion used to be through franchising but this change means more emphasis on partly owned subsidiaries. This has proved to be successful in Southern and Eastern Europe. The weak pound is proving to be an advantage for the international side of M&S as businesses overseas buys from them in GBP, which means they get a cheaper rate and pass that onto overseas customers.
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In addition, it was announced in October that overseas customers in 73 countries can now order online direct from the M&S website. This has proved a success since its initial launch in 7 countries 11 months ago. This allows those worldwide customers to experience M&S without the need to enter a store
Investing in M&S Direct There has been a 19% rise in sales through M&S Direct, reaching £324.4m and it is currently on target to reach £500m by the end of 2010/11. These successful figures can be traced back through to numerous changes and actions that the retailer has implemented on their online platform. Marks & Spencer's online strategy has received various changes over recent months. The website has been revamped and they are now engaging with customers through the well known social networking site Facebook – updating ‘fans’ of the brand with any new lines in the online store as well as any promotional offers. (Further information on M&S Direct can be found in Appendix VIII)
Plan A and Cost Control Plan A was introduced in January 2007 and M&S set 100 commitments to achieve within 5 years. It looks at 5 main areas, working with customers and suppliers to combat Climate Change. These 5 pillars are; Waste, Sustainable Raw Materials, Fair Partner and Health. Plan A comes from ideas put together from Marks and Spencer’s BIG group and customer feedback stating; ‘We're doing this because it's what you want us to do. It's also the right thing to do. We're calling it Plan A because we believe it's now the only way to do business. There is no Plan B.’ (Further information about Plan A can be found in Appendix VIII)
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Conclusion Stuart Rose has made significant changes to improve the structure and outcome of M&S but now as he hands over to the new CEO Marc Bolland, Rose has warned "M&S is a business that is judged all the time on how it behaves and what messages it sends out. It is the standard by which others are measured." (The Guardian, 2009).
With the UK not yet out of the recession and employment rates still dropping, M&S could yet continue to battle with the current climate,not only facing internal competition but also from other competitors.
The new strategies put in place shows that M&S has listened to its loyal customers who do not want to go elsewhere for goods that they once relied on their favourite brand for. It is also branching out to reach a new customer in order to form new loyalties to come.
It is difficult for M&S to keep a balance between the loyalty of customers by sticking to what does best whilst enticing new people to the brand with more ontrend lines
A key area to look into is that of the ever ageing population. One of Stuart Rose’s aims was to offer the brand back to the 35 to 50 year old consumers, however according to research carried out by Datamoniter, three quarters of those shopping in the food department are over 45 and 65% of clothing shoppers are 55.
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The Guardian (2009) reports that One early response from M&S was to sign up trendy twentysomething models Lily Cole and Lizzie Jagger to its roster of "faces", but they were quietly dropped, and the proportion of M&S's clothing sold to over-55s is up 10% since Rose took over five years ago. Bolland will need to look at these ranges in detail if he wants to appeal to a younger market, especially those with lower disposable income in the current financial situation. Another area to consider is the food department, with many customers still taking the view that M&S’ food is too expensive. The recent move to food brands such as Heinz Ketchup and Marmite are well thought out ideas to stop shoppers from needing to go elsewhere for their favourite labeled essentials. With Bolland taking over, this should be an area of expertise. Looking further internationally could be key to M&S’ future growth. With the UK market seen as been at it’s most mature, looking outwards to other countries could spell a new lease of life for the brand. Offering branding that appeals to cultures within these countries could draw in further business and help to boost the brand once more. The traditional methods of M&S may have worked up till late 1990 but it is now time for M&S to be a little more creative with its strategy. There is no need to change these values of quality; however, consumers are now looking for more for their money. It’s time for M&S to listen to its customers and deliver.
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APPENDIX I: PPD STATEMENT Emma Bunce LCF FdA Fashion Marketing & Promotion (Online) A Case Study Analysis Report of Marks and Spencer Plc Student ID: BUN08243738
PPD Statement – Fashion Business Management Throughout the last ten weeks I feel I have covered, although in some areas somewhat briefly, many of the PPD Principles within the topic. My learning to learn skills have greatly improved through the practice of information gathering using applications such as Mintel, FAME and Vital (which is relatively new to me this term). Also, the way in which I search for articles on the internet has greatly improved as I now only look for key words instead of whole sentences. I have learnt to be selective when gathering secondary research and have found that working together and sharing information has helped a great deal. Knowing that I frequently get too tied into the little details, this assignment has been a challenge. Cutting back and keeping within the word limit has been a struggle. I feel I have regularly assessed my own work and learning skills throughout the term, with the use of reflections. Looking back at previous weeks has shown me that I have struggled with the particular topic yet gradually have come to learn more and more each week, gaining understanding as I go.
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I have gained skills in analysing and evaluating stats and financial figures, which in turn helps with me with my current employer, allowing me to understand where the business stands. This has given me the confidence to speak with the financial director on money mattes with regards to the business. The work with my peers through the discussion boards has helped form further understanding. I feel that between us we have a good grasp of the material and subject matter and are able to help one another out with certain aspects. Again this has helped my confidence levels greatly both at work and while studying. I believe this confidence is through my report writing and communication skills throughout. As well as written, communicative and learning skills my IT skills have developed enormously. I freely move through applications and am able to extract relevant pieces of information. My use of Excel has also improved from building graphs to summing of data. My numeracy skills still have a way to go however, they are improving with each time that I analyse financial dat. I am not afraid to play around with these applications to see what information I can produce. I still have moments of doubting myself when putting together a report from gathered information which I feel I need to work on but I do believe that I am now more controlled in my thinking and writing.
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APPENDIX II: REFERENCES BBC, 1999 http://news.bbc.co.uk/1/hi/business/345239.stm Accessed 5th December 2009 Brand Republic, 2005 http://www.brandrepublic.com/News/233544/Superbrands-case-studies-Marks--Spencer/ Accessed 20th November 2009 Brand Republic, 2009 http://www.brandrepublic.com/News/968446/Marks---Spencer-marketer-hold-liveweb-chat-customers-via-Facebook/ Accessed 20th November 2009 Buchanen, D and Huczynski, A 2004 Organizational Behaviour An Introductory Text Pearson Education Ltd 2001 DailyMail, 2009 http://www.dailymail.co.uk/news/article-1225081/after-125-years-m-s-stores-startselling-brands.html Accessed 19th November 2009 M&S, 2009 http://annualreport.marksandspencer.com/ Accessed 16th October 2009 M&S, 2009 http://corporate.marksandspencer.com/media/press_releases/company/NewLook Website Accessed 17th October 2009 M&S Annual Report, 2009 http://annualreport.marksandspencer.com/operating-financial/our-people/ourpeople.aspx Accessed 17tyh October 2009 MailOnline, 2009 http://www.dailymail.co.uk/tvshowbiz/article-1224936/Sneak-peek-Ab-Fab-starsjoin-John-Sergeant-Twiggy-shoot-M-S-Christmas-ad-swipe-ageist-TV.html Accessed 1st December 2009
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Mintel Report, 2009 Department Store Retailing - UK - January 2009 Marks & Spencer. Mintel, 2009 National Statistics, 2009 http://www.statistics.gov.uk/cci/nugget.asp?ID=12 Accessed 13th November 2009 Porter, M. 1985 Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, 1980, p. 4 Poulter, S. 2009 After 125 years, M&S stores to start selling other brands | Mail Online. Accessed 19th November 2009 The Guardian, Observer, 2009 http://www.guardian.co.uk/commentisfree/2009/nov/22/elizabeth-day-marks-andspencer Accessed 28th November 2009 The Guardian, 2009 http://www.guardian.co.uk/business/2009/nov/22/bolland-marks-spencerproblems Accessed 3rd December 2009
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APPENDIX III: PESTEL
Political •
The recent decrease in VAT has encouraged public spending, but with it set to rise back up to 17.5% in January 2010 this could have a detrimental affect on retailers if the UK economy is not secure enough
Environmental •
M&S has committed to expand its range of Fairtrade and organic clothes, while the Fairtrade Foundation has set itself a target of ensuring Fairtrade cotton is used in at least 10 per cent of cotton clothing in the UK by 2012.
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Marks and Spencer is one of the pionering green retailers in the UK. In 2007 they already came up with the 100-point action plan to become ‘carbon neutral’ by 2012. They have improved energy efficiency in the stores by 10% and reduced packaging by 15 %. In 2008 they opened the first of four eco-factories in Sri Lanka for manufacture of lingerie. (M&S, 2009)
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In 2007 M&S launched Plan A – a series of 5 commitments. One of the commitments is to ensure that no clothing or packaging needs to end up as landfill. M&S are moving towards this goal in a number of ways, including reducing packaging, improving recycling and cutting down on plastic bags. This move has reduced the use of plastic bags by 83% figure 2008/2009 versus 2006/2007. (M&S, 2009)
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Marks and Spencer currently charge 5p per plastic bag used by consumers. All of the 1.85p profit from the sale of single use food carrier
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bags is donated to Groundwork; to invest in projects that will improve parks, play areas and public gardens in neighbourhoods around the UK. (M&S, 2009) •
In 2009 M&S signed up to the government’s new Sustainable Clothing Roadmap. Under the agreement, these companies have agreed to undertake a wide range of measures designed to cut the fashion industry's environmental and carbon footprint and improve labour practices across its global supply chains such as encouraging customers to wash clothes at 30 degrees centigrade.
Social •
The recent recession has played a major part in the social mobility within the UK. Unemployment levels can affect social mobility (see references for national statistics). However, it is predicted that employment is set to rise again and so there may be further social mobility to come.
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People now live longer, which means they can spend more during their lifetimes. As M&S’ main customer base is people aged over 40, with a large proportion over 55, this presents a good business opportunity for M&S (The Economist, 2008).
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With competitive retailers such as Topshop, Next and H&M that are able to change with the fashion trends, M&S may see a decline in customers as its image is still seen as rather conservative.
Technological •
The Internet has become a powerful selling channel. M&S online sales rose 19.0% to £324.4m and are on target for £500m by the end of 2010/11. The goal is to generate £500m by the end of 2010/11 (M&S, 2009).
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•
The use of social networking sites are now prevalent in today’s society. M&S has reportedly used Facebook in order to create a fan page to keep customers up to date on recent events and promotions. Facebook is a fantastic platform for communicating with its customers. It's direct, responsive and popular with almost 100,000 fans of the M&S Facebook site (McIntosh, 2009)
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Mintel have estimated that online fashion sales will account for 9% of all clothing and footwear sales, reaching £4.1bn by the end of 2009. M&S are able to reach out to an extended audience of International customers by offering this service.
Economic •
The recent recession has affected major Western economies, meaning that people’s disposable incomes may go down. In turn, consumer spending has slowed down in the face of higher inflation and job market uncertainty. With M&S selling goods known as ‘non-essentials’ this could have a detrimental affect. And could encourage more special promotions in store. However, in contradiction, this may encourage investment buying instead.
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This may directly affect M&S, as it is viewed as a more expensive option as opposed to Tesco or Asda. Consumers may switch to cheaper stores and start shopping in M&S as a ‘treat’.
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At the same time, incomes are rising in Eastern Europe, Russia and Dubai where M&S recently opened its stores. Revenues from these markets may partly offset the decrease in consumer spending in the West.
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One can assume that people tend to eat out less in times of economic turmoil. This may, actually, benefit M&S as people stay home and buy its foods, perceived to be of higher quality. With the ‘Dine In for £10’ range, this could encourage further spending.
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•
Rising oil prices are adversely affecting all companies including M&S. Both WTI and Brent oil traded for more than $100 a barrel as at the time of writing (FT, 2008).
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The change in exchange rates could affect M&S’ buying habits as imports to the UK become more expensive. In turn, International spending may increase due to the strength of the Euro.
Legal •
Law and Politics are very closely linked within business. If one were to look at the way in which the EU legislation has impacted the UK Fashion Industry it can be noted that regulations on issues such as sizing and VAT on clothing are examples of how domestic and international legislation affects the industry and, in turn, affecting M&S.
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The Trade Descriptions Act was bought into action in 1968 This Act of the Parliament of the United Kingdom prevents M&S from misleading consumers.
Sunday trading hours were put into place in 1994 under the Sunday Trading Act. This meant that larger stores such as M&S with a floor area of more than 280 sq m may only open for six continuous hours between 1000 and 1800 on Sundays - excluding Easter Sunday, when they must remain closed. Initially this was thought to bring in consumers and raise profit levels within the high street, arguing it would generate an extra £1.4bn for the UK economy. However, many have disagreed with the opinion that having “more time to peruse” can make consumers more discriminating in their choices and lower the levels of impulse buying on lunch hours.
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APPENDIX IV: PORTER’S 5 FORCES Threat of Entry •
Threat of new entrants is low due to the recession. Property prices are at a low, meaning that a possible threat, if it had the money, could enter the market. However, it takes large capital investments to set up a successful chain of department stores and borrowing is difficult with interest rates being unpredictable.
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Customer spending is low and the government has tackled this by reducing the VAT rate to 15% until January 2010 in order to encourage spending on the high street again.
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The use of the internet has allowed new entrants on a global scale with low overheads and customers feeling safe about purchasing online.
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Supermarkets have now expanded product ranges, with clothing and entertainment as well as home ware being available on the shelves. This poses a big threat to department stores, benefitting from an established distribution and store system and a loyal and regular customer base.
Threat of Substitutes •
Due to the current economic climate, a reduction in demand for products as customers switch to alternatives is likely. Offering substitutes within the same brand, such as different pricing levels for a particular garment is more likely to keep a loyal customer base and stops them looking elsewhere.
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With lead times getting shorter, manufacturers are able to turn around alternatives to those seen on the runway quicker than ever before.
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•
For M&S, the direct rival in the food market is Waitrose, while John Lewis and Next offer high quality clothing. Tesco and Asda have also introduced cheaper alternatives. With this in mind, the threat of substitutes is high.
Power of Buyers •
Is high. With the concentration of buyers currently at a high level they can dictate their rules/tastes.
•
With the many retailers available, buyers are able to shop around. M&S must maintain the trust of their buyers by consistently supplying high quality garments to stop customers from going elsewhere.
•
The power that the buyer has means they can drive down costs with their suppliers. Suppliers are aware that they could easily switch to another supplier; therefore M&S must continue to offer buyers the best value for money they can offer.
Power of Suppliers •
Is low as M&S is not as dependent on suppliers as other stores as it mainly sells own branded products. This means that it largely buys raw materials and not finished goods, which is favourable for margins (M&S, 2009).
•
Suppliers do not have a choice when it comes to large accounts like M&S negotiating a discount. There are many outsourced suppliers that can threaten with a switch easily.
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Competitive Rivalry •
M&S is a retailer that sells food, clothing and home wares. Therefore it faces competition from both supermarkets such as Tesco, Asda and Sainsbury’s and clothes retailers such as Next, and John Lewis.
•
Porter (1985) wrote that companies pursue one of three generic strategies: low cost, differentiation or hybrid. M&S prides itself as being a higher quality value-for-money brand. However, with the recent rebranding and cutting of prices for clothing, it risks devaluing the brand in the market where specialisation is becoming increasingly important.
•
M&S Financial has competition from Banks and other financial service providers.
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APPENDIX V: FAME GRAPHS
M&S Gross Profit
The Graph shows the turbulent time M&S has had over the years with a substantial rise in turnover after Stuart Rose became CEO
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John Lewis Gross Profit
Over the years John Lewis has had a steady increase in Gross Profit. The Company’s slogan “never knowingly undersold” could be the reason behind this, with customers having trust in the brand to keep coming back overtime.
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APPENDIX VI: FAME GRAPHS
Liquidity Ratio
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The Liquidity Ratio is M&S’s ability to pay its obligations such as short term bank borrowings. Medium term loans are used to finance fixed assets such as its stores. Then the group also has retained profits to meet shortfall in funding of assets. The above graph shows the range and ratio at which M&S is financing these obligations. The level and maturity of debt is flexible to match the life of asset with the tool used to finance it.
M&S’ Stock Turnover Graph
The graph shows the rate of stock turnover for M&S. The Stock Turnover Ratio shows how many times over the business has sold the value of its stocks during the year. As can be seen in 2004 the stock turnover was high, indicating that the
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store wasn’t selling its stock quick enough. This has gradually decreased from that time showing that sales are picking up and stock is being held within store for a lot less time. Ideally M&S will lower this further as its profits increase.
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APPENDIX VII: SWOT ANALYSIS
Strengths •
Mintel reports that 27% of UK shoppers are now looking to buy fewer but better quality clothing. With 72% of M&S’ clothing offer in the ‘better’ or ‘best’ price brackets, therefore, maintaining its trusted reputation by continuing to still offer a higher quality of product to its customers. This in turn has promoted customer loyalty as shoppers look toward familiar, trusted brands in the financial uncertainty.
•
Many shoppers are looking back to familiar, trusted brands. M&S has a strong brand embodying quality, value-for-money and practicality, which appeals to many people and promotes customer loyalty.
•
The executive team is very experienced with CEO Stuart Rose widely praised for having reversed M&S fortunes from 2004 and continuing to succeed even throughout the recent financial downturn.
•
M&S markets itself aggressively and involves celebrities like Twiggy, Myleene Klass, Laura Bailey and Take That (M&S, 2007).
•
Sponsorship deal with Fashion Retail Academy and ‘lead to succeed’ programme building up team members and leaders for the future
Weaknesses •
Many of M&S’ core demographic have been hit hard by the recent recession. (Mintel, 2009) (See Appendix VIIII)
•
Strong competition from value retailers such as Primark and Matalan may attract custom away from M&S due to price war – especially the demographic with less disposable income.
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•
M&S tries to please too many people too much of the time. (The Guardian, Observer, 2009)
Opportunities •
Developing markets of China and India present huge opportunities for M&S for the use of fabrics and other materials.
•
Plan A promoting healthy lifestyles present an opportunity to sell a healthy food range and fitness products.
•
Improvement of Website – ‘Shop your way’ in order to attract new customers including internationally. Press release in October 2009 http://corporate.marksandspencer.com/media/press_releases/company/N ewLookWebsite
Threats •
Currently, M&S target demographic are older customers in the ABC1 bracket. This may be risky as today’s 20-30 year olds might be reluctant to shop in M&S, especially those with families to look after during the current economic climate.
•
With many retailers failing due to the current economic climate, the door is now open for new entrants from foreign competitors due to the weakness in the £ with the availability of good sites and lower running costs.
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APPENDIX VIII: STRATEGIC POSITION
Investing in M&S Direct M&S have reported that “since the service was launched in June 2008, reviewed products have received an average rating of 4.1 out of 5. As a result, sales of well-received products have increased by as much as 20%.� (M&S Annual Report, 2009) M&S are focussed on being a pure internet market player and they are ready to use all tools and methods available to reach this status such as the launch of Plan A. The website offers many ways in which customers can get involved and join Marks and Spencer with Plan A, from tips to stop food waste through planning ahead with shopping trips to easy to follow recipes using everything in your fridge
Plan A and Cost Control
One of the Plan A commitments is to ensure that no clothing or packaging needs to end up as landfill. M&S are moving towards this goal in a number of ways, including reducing packaging, improving recycling and cutting down on plastic bags. This move has reduced the use of plastic bags by 83% figure 2008/2009 versus 2006/2007. Marks and Spencer currently charge 5p per plastic bag used by consumers. All of the 1.85p profit from the sale of single use food carrier bags will be donated to Groundwork; to invest in projects that will improve parks, play areas and public gardens in neighbourhoods around the UK.
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Marks and Spencer prides itself on winning the Retail Leadership award at the 2009 Greener Package Awards for its industry-leading approach to reducing packaging and addressing sustainability. Between April 2007 and May 2008, it managed to save 12%, or 1402 tonnes, of packaging. In some cases they also managed to add recycled content to its packaging, whilst still maintaining 90% recyclability. Since October 2007, they have increased the amount of widely recyclable food packaging from 68% to 74%.
M&S is committed to sourcing as much of its food as possible from the UK and Republic of Ireland. These ‘home grown’ products allow the company to have tighter controls over how it’s products are grown; looking at areas such as free range eggs, phasing out pesticides and maintaining its non GM food policy.
Within Plan A, Marks and Spencer have put together ideas and ways in which customers can help and save money at the same time. The Plan A calculator helps customers to look at areas such as laundry, food waste, recycling clothing, driving economically, saving energy round the home and offers it’s very own Energy Package called ‘M&S Energy’, claiming to save customers up to £100 in total.
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APPENDIX VIIII: MINTEL REPORT Department Store Retailing - UK - January 2009 Marks & Spencer The leading clothing retailer in the UK and a major operator in the grocery sector, M&S operates 685 stores in the UK and 294 stores internationally. The management under Stuart Rose has seen rapid recovery at the company until a more subdued second half of 2007/08.
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FIGURE 79: Marks & Spencer (UK): Sales as share of all department store retailers’ sales in UK, 2003-07
M&S’ sales growth and market share gain slowed down in early 2000s. Its formula was looking jaded and poor value for money. The initiatives put in place in 2004 began to bear fruit in 2005/06. The group regained market share steadily until the troubles of the wider economy started to reflect on it in the second half of 2007/08. NB: Based on M&S’s total UK retail sales. Does not represent the department stores’ actual share of the market, but rather the relative performance. Source: Company Accounts and Annual Report/Mintel
Strategic evaluation A promising resurrection In Mintel’s view, M&S has made promising progress towards resurrection in recent years, regaining market share. Re-establishing its style and value
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credentials through improvements to product offer, price positioning, stores and marketing, it turned the tide on footfall and conversions. Meanwhile, various improvements to cost controls and buying have helped margins. But clouds gather However, all this was achieved in a booming economy, with M&S’ growth losing steam in 2007/08 in the climate of troubles in the wider economy, weakening consumer confidence and growing pressure on prices. Various factors are affecting the group, in our opinion. •
Many of M&S’ core demographics are amongst those we expect to have
been first (and worst?) hit by the current troubles in the economy (for more details on Mintel research on M&S shopper demographics we refer readers to the section on market positioning). •
Some 27% of UK shoppers are now looking to buy fewer but better quality
clothes, while 13% will buy more clothes at value retailers, according to Mintel’s consumer research. With 72% of its clothing offer in the best and better price brackets, we feel that the key to M&S is to continue attracting the former group ahead of competition. •
In this context, we feel that it is of great importance that, even in the midst
of the current price-focus, M&S maintains the fashion ‘must-have’ edge it has developed in recent years. This plays an important role in value perception and in discouraging shoppers from trading down. •
The group’s green and ethical credentials have provided a point of
difference. However, we feel that the battle for the consumer’s now-scarce pounds is unlikely to be fought (or won) on these grounds. •
In a price-led market, there is greater pressure on margins.
Tough times call for familiar brands?
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•
Like the economy, M&S is faced with a tough couple of years, in our view.
But it has been through recessions before, has a strong management at the helm and a plan of action in place. •
As many shoppers are looking back to familiar, trusted brands, we feel
that M&S has potential to keep its head above the water in the storm. The balancing act is, in our view, one of maintaining the brand essentials – quality image – while accommodating the changing needs of its core shoppers, most notably in continuing to sharpen its value image. •
The group reports that plans are already in place to optimise margins and
tightly control cost, indeed maintaining a strong balance sheet is among its key short term priorities. It remains to be seen whether the now-wary City can keep its sights on the long-term potential of the brand and the operation, rather than withdrawing its support during the (hopefully) short run upheaval. Recent history 2004
Abortive bid attempt by retail entrepreneur Philip Green. Stuart Rose appointed Chief Executive at end May. Head Office moves to Paddington. Kate Bostock joins as head of
2005
womenswear. M&S Money business sold. Executive Board reduced to three for quicker decision-making. Some 650 head office jobs cut. Per Una brand, originally developed for M&S,
2006
bought from George Davies for £125 million. 28 stores acquired from Iceland chain in the UK. Kings
2007
Super Markets business in the US sold in April. Launched a £200 million business-wide eco-plan in January. Ruled out a rumoured bid for J. Sainsbury in
2008
March. Acquired 50% stake with Board control in Southern Europe franchise operator Marinopoulos Group in March. Purchased 51% stake in Central and Eastern European franchise partner COMS a.s. in April.
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Financial performance The five years to 2007/08 have been a volatile time for M&S. •
Following a difficult 2004/05, improvements to operations saw a return to
form in 2005/06, with robust growth in sales and profits. •
The momentum continued into the following financial year, with a more
subdued 2007/08 as the troubles of the wider economy started to reflect on M&S in the second half of the year. •
New store openings (sales area increased by 17.1%) have supported UK
sales growth over the period, while focus on full-price sales, reviewed supplier terms and conditions and better buying boosted profits. Results continued to weaken in the first half of 2008/09, with group sales up by 0.8%, but like-for-likes falling by 5.7% (down by 6.2% for non-food, 5.3% for food). Weak sales and heavy promotional expenditure put pressure on margins, with operating profits falling by 23.7% to £372 million. For the thirteen weeks to 27 December 2008, the group reported: •
Group sales down by 1.2%, a 3.4% decline in the UK and 26.9% growth
overseas. •
UK like-for-likes down by 7.1% year-on-year (general merchandise -8.9%,
food -5.2%). •
Online sales up by 26.9%
•
Post-Christmas sale entered with 15% less stock than the previous year.
•
Continued tight cost control.
M&S also announced the closure of 25 Simply Food stores and two small main chain stores, and proposed staff cuts at the head office of up to 450 jobs. These steps are aimed at reducing the UK underlying cost base. 42
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FIGURE 80: M&S: Group financial performance – continuing operations, 2003/04-2007/08 (£m) Latest year end: March 2004 (a)
2005
2006
2007
2008
7,490.5
7,797.7
8,588.1
9,022.0
2008 Group sales (£m, excl.
7,728.1
sales tax) Group sales (€m, excl.
11,200.1 11,015.4 11,467.2 12,629.6
12,809.3
sales tax) Of which: UK retail (£m, excl.
7,293.7
7,034.7
7,275.0
7,977.5
8,309.1
sales tax) International retail (£m,
434.4
455.8
522.7
610.6
712.9
Group operating profit
783.6
598.1
850.1
1,044.0
1,089.3
(b) Of which: UK retail International retail
738.6 45.0
528.0 70.1
784.5 65.6
956.5 87.5
972.9 116.4
Group operating margin 10.1
8.0
10.9
12.2
12.1
% Of which: UK retail International retail
7.5 15.4
10.8 12.6
12.0 14.6
11.7 16.3
505.1 6.7
745.7 9.6
965.2 11.2
1,007.1 11.2
excl. sales tax)
na na
Group pre-tax profit 722.7 Group pre-tax margin % 9.4
NB: The figures for years ending 2005 to 2008 are prepared under IFRS. The figures for 2004 are UK GAAP figures and not comparable with the later data. (a) 53 weeks (b) Before asset disposals and exceptional items. 43
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SOURCE: Company Accounts and Annual Report/Mintel At September 2008, the group operated ten Premier and 41 Major stores in the UK, within its portfolio of a total of 685 stores. We believe this to be a good indication of the network of the stores that carry the full or near full assortment and these should therefore be treated as department stores. We believe that the Premier and Major stores within the group’s mainline offer generate significantly higher sales densities and sales per outlet than average and estimate that M&S’s sales relevant to the department store sector are in the region of £5 billion. UK •
2004/05 was the low point in sales growth for M&S, with difficulties across
all product areas. •
Steps taken in response brought improvements in 2005/06. These
included a revamp of price architecture in clothing, better availability, simpler ranges, a memorable food ad campaign and refocusing of the home offer on traditional areas of strength (bedroom, bathroom, kitchen and dining). •
The improvements continued to bear fruit in 2006/07, with M&S
successfully tapping into various emerging food trends and re-establishing its fashion credentials partly on the back of clearer segmenting. Clearer price architecture and strong demand supported the home offer. •
The troubles of the wider economy and weakening consumer confidence
led to M&S’ growth losing steam in the second half of 2007/08, with growing pressure on prices.
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