Strategic Analysis of Marks and Spencers Plc (M&S)

Abstract:

This report critically analyses how the external and internal factors affect the strategies of M&S and modifies its business strategies. Even though M&S has good strategy and marketing plans they haven’t used it to their advantage. It also tells how the macro and micro environment affect their strategy and their plan. The report uses frame works like PESTEL, SWOT and porter 5 forces.

It further investigates the strengths, weaknesses, opportunities and threats of M&S.

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This report highlights on M&S planning, organising, and taking decisions. It further incorporates the history, business operation, and the treats and opportunities faced by the company. It also provides an alternative solution and offers recommendation which might help the company to compete in the market, by providing appropriate service to its customer’s .The main aim of this report is to evaluate how M&S can survive in this ever changing market

Introduction:

Marks and Spencer the Britain retailer (often referred to as Marks & Sparks by locals) is a general retailer that sells clothes, gifts, home furnishings, and foods under the brand name St. Michael in the UK, Europe, the Americas and Far East. The company also operates in the financial services segment.Marks & Spencer was started in 1884 by Michael Marks in the Leeds market. The company strived for value and low prices and worked for its development. By 1901, the company acquired 35 outlets and had a new partner in Tom Spencer. The company’s stores started to carry the label (St. Michael) by 1949. The company’s vision is to offer consumers great quality, value, and service. With nearly 300 stores in the United Kingdom, M&S is the country’s largest retailer and holds 17% of UK clothing market. The goods they have are perceived be of excellent value and quality. It has been seen that the company adheres to top-down management approach and watched under the close supervision of its former CEO. This was going good with the company for several decades, But latter part of the 1990s there was a noticeable decline in the sales and in the overall performance of the company.

Strategic position

Marks and spencer is operating in a very competitive environment and there are many factors that affect the company in the outside environment. As they operate in many segments like food cloths and home and beauty products they have to deal with a lot of competitors. M&S is very sensitive to technological, social and economic factors. It has to keep up with ever growing and changing trends of clothing if they have to compete in the market. The key drivers that affect M&S are changing trends and online purchasing as they have no control over it.

The core values of M&S: quality, affordability and service were under the attack from its competitors. Other Retailers such as Top Shop, Next, Debenhams, Warehouse and the Gap provide the customers with better fashionable and trendier designs with good value. Food chains, such as Tesco, Waitrose, and Sainsbury have started to move into frozen foods and readymade food products. M&S has challenge from all the business segments it is competing. But M&S has not changed enough to be competitive; this resulted in M&S losing its profits and market share (M&S Press Releases 1999)

Strategic clock: Differentiation

Perceived value

M&S is trying to gain market share and for them to regain its market share and dominance they need to invest. Currently M&S takes on the larger market share and is still suffering in its profits. This implies weakness in a rather cutthroat world of retail. Giving access to quality food and clothes to all is their vision. They are committed to understanding and meeting the customer’s needs consistently, in this ever competitive retail environment.

M&S has 90% of its revenues from the UK (Mintel,2009) , Increased food and fuel prices has an impact on the disposable income of the consumers which leads to weaker demand for non-food products, M&S is responding to this trend of cutting prices this is having a serious effect on their sales

Environmental analysis

Swot analysis:

Strengths:

• Excellent and high quality products
• They have excellent relationship with its employees they are treated well and paid well
• It has stores all over high streets in London
• Profitable company and has a large market share in the retail sector
• It has a long term relationship with its suppliers
• It’s been here for more than 100 years so it has a good history of trade.

Weakness:

It is heavily reliant on British suppliers where as its competitors use foreign suppliers for low cost products.

They have an old and classical fashion image, advertising is poor as they do not offer discount sales during festivals like Christmas and Easter, this Is the time when the customers buy a lot of goods.

• No customer focus
• Technology is poor as they cannot provide reading of their inventory
• No knowledge about the market for the younger generation.
• Poor customer service as they do not provide fitting rooms and loyalty cards.

Opportunities:

M&S has to enter the e-business effectively as their competitors

Expansion in growing product areas such as Food, Home and Beauty as they have customers trust for their quality and innovation

The Home business, areas like home furnishings and gifts are fastest growing product areas and beauty products are growing rapidly. Both of these areas offer promising opportunities for the company to develop and expand

Focus on cloths market segment by age group and introduce clothing line for kids and teenagers.

Threats:

• Since M&S operate in many segments like food clothing and others they have many competitors such as Tesco, Sainsbury, Zara, Gap and top shop.
• Customers are always looking new fashion cloths
• Internet allows the customers to shop from home online.
• M&S has not done well in the foreign market after expanding abroad.

Porter’s 5 forces model:

• Competitive rivalry (High):
• Marks and spencer faces high rivalry in the clothing sector from next and gap, they also face high competition in the food industry from Tesco and Sainsbury.
• Bargaining power of buyers (High):
• The threat from buyers is high as they have large number of retailers situated very close by.
• Bargaining power of suppliers (Low):
• The power of suppliers is low as there are concentrated purchasers.
• Threat of new entrants (Medium):
• Is very relatively low as there the other retailers are already established.
• Threat of substitutes (High):
• There has been increase in retailers who import their goods from foreign countries, so consumers can buy the same products for cheaper price.
• Cultural web:

Evaluation of strategic direction

The strategic direction of Marks and spencer can be evaluated by using the TOWS matrix, Ansoff matrix which helps us to understand how marks and spencer can possible convert their weaknesses to strengths and their threats to opportunities.

The vision of Marks and Spencer is to give standard and high quality products to all. Marks and Spencer give huge importance to a work place that inspires and rewards the employee’s .The approach to Corporate Social tell us their commitment to Quality, Value, Service and Trust. It allows Marks and Spencer to manage operations responsibly, this helps them to attract shoppers to their stores and retain their customers, it also helps to have a good understanding with the suppliers and helps to give value to their stakeholders.

TOWS MATRIX:
TOWS

Strengths Opportunities

• High quality productsHigh end customers
• Stores all over highEast accessibility to streets in the UKthe customers
• Mature in high profitableScope for improvement economyin marketingand
• Technology

Weakness Opportunity

• Suppliers limited toNew suppliers the UK
• Poor customer serviceEnhanced services not Keeping with theMust enter E-business
  competitorsin a effective way

Weakness

Threat

• Reliant on BritishHigher production costs suppliers
• Poor marketingIntense competition
• Strategy
• Poor technology use
• New entrants into the market with better technology

Strength Threat

• High street giantHigher cost, online sales by
  competitors
• Long term relationshipnew lower cost suppliers
  with suppliers
• Cost efficiencyNew market

By looking at the TOWS matrix the strategic direction is suitable with capabilities M&S has.

Industry life cycle:

This is a tool used to look at the current phase of the company, according to industry cycle M&S is in the maturity stage; after looking at the external environment the life cycle curve indicates that growth is slow due to a lot of competitors. However this calls for M&S to change their strategy due to heavy competition, in the market.

Ansoff matrix:

We can use Ansoff product/market matrix to identify the strategic direction for Marks and Spencer’s. This matrix helps to understand the strategic option available to M&S in terms of products and market coverage, by looking at their strategic capability.

Market penetration can be done by product development as their clothing lack variety and if they can develop this they can be competitive. It can also be achieved by concentrating only on the UK market and consolidating it. Product development can be achieved by developing the per una brand as it is already an established brand.IT development to promote online shopping. Market development can be achieved by looking at new countries new customers and can also consider entering new segment like children’s wear and teenagers to be competitive. Marks and spencer can also diversify in food, beauty products and home appliance and get into partnership with other retailers.

Conclusion:

Using the environmental audit (PESTEL and SWOT) and strategic analysis it can be seen that M&S poses some strength within them and also a few weaknesses. They also have a few threats and areas of opportunities which explored can take M&S to new Heights.

M&S drifted away from its core values and failed to notice that the competition was getting tougher and was not in line with the changing trend, this made them to lose a few customers. The mid-market segment which M&S was operating was hit by recession and this made the consumers move to other retailers such as Primark, Tesco Sainsbury etc. which were providing the consumers for cheaper rates.

M&S should come up with a contingency plan to not only focus on differentiation, but also to encounter the growing rivalry from other supermarket chains.

Acceptability: Looking at the current weaknesses like not following the market trend in the clothing line and no proper customer service that M&S have it can’t sustain the challenge from other retailers like Tesco, Sainsbury, gap and Zara as do market research and follow the current trend that is in the UK.

Feasibility: With the combination of its strengths the strategy M&S is using can be feasible but need to turn its threats to opportunities. M&S need to diversify and keep up with the challenge from the competitors, so that they can satisfy the shareholders

Sustainability: For M&S strategy to be sustainable and prosper in the long term their core competences has like value to customers, Rarity, inimitability has to be looked at. Because customers feel they are not getting value for their money as the competitor are offering goods for cheaper prices, Their products are not rare and can be imitated by other competitors.

Recommendation:

The current strategy M&S is pursing is not very sound, so here are a few changes that M&S has to look at that would help them to capture back the lost market share and customers.

Come up with new quality products in areas of cloth food home and financial services and achieve customer satisfaction through quality service.

Regain lost market share in clothing: Improve the Per Una brand as people like it.They have to be customer oriented and do a market research on the current trends in the UK. Start providing trial rooms so to attract customers. Use Zara’s concept of communicating with the manufactures abroad through media.

Obtain customer opinion and feedback this helps not only in keeping up with the current trend in the clothing line but also helps to do research in the food and home appliances sector.

Improve online shopping this not only helps in reducing costs but also helps in increasing sales and to be competitive and also an opportunity to advertise in the internet.

Make the advertising big as M&S is an old organization and the younger generations who are not aware of it would rather go to stores which are attractively advertised. Putting up hoardings in the streets and may be in the Tube stations would help attract customers not only in UK but also tourists.

Improve the customer shopping experience: M&S need to invest in its stores in areas like stock availability and better customer service which adds to the value to the customers and uniqueness quotient.

Improve franchising in foreign: This helps to capture market share in other countries with less capital.

References:

<http://corporate.marksandspencer.com/investors/corporate_governance/governance_framework> (n.d) [15 June 2011]

<http://www.docshare.com/doc/103365/Exploring-Corporate-Strategy-in-Marks-and-Spe> (n.d) [16 June 2011]

<http://www.examstutor.com/business/resources/companyprofiles/marksandspencer/strategyinsight.php> (n.d) [15 June 2011]

<http://www.marksandspencer.com/thecompany/> (n.d) [15 June 2011]

<http://www.google.co.uk/imgres?imgurl=http://mamikikeyu.files.wordpress.com/2011/04/lifecycle.png&imgrefurl=http://mamikikeyu.wordpress.com/2011/04/&h=322&w=414&sz=14&tbnid=-r6cuuc94rtigM:&tbnh=97&tbnw=125&prev=/search%3Fq%3Dindustry%2Blife%2Bcycle%2Bdiagram%26tbm%3Disch%26tbo%3Du&zoom=1&q=industry+life+cycle+diagram&hl=en&usg=__LrlcgyCPZs3vCFQwZWOWw1dMPV4=&sa=X&ei=KVP7Ter7KsrJhAeE1emUAw&sqi=2&ved=0CCIQ9QEwAg> (n.d) [17 June 2011]

Appendix:

PESTEL analysis

POLITICAL – The EU and the Free Trade Agreements, this helps the other British Companies to take advantage of it by getting their goods from other countries for cheaper rates compared to M&S higher cost structure. Issues of labour laws

ECONOMIC – the Retail sector is very sensitive to changes in tax and interest rates. After the economic slump the retail industry is once again booming. The competitors import their goods from other countries to cut cost but this puts M&S in a disadvantage as they get the good from within the UK.
SOCIAL – changing life style and trend of the consumers could be a threat to the company. However this also could be an Opportunity in terms of new market and consumers.
TECHNICAL – Media plays an important role in communicating with the designers and manufactures in other countries about the changing trends of UK. Online shopping Is now getting more and more common.
LEGAL –To provide high quality as promised, and legislations for health and safety both in terms of consumer rights and also in terms of production of own natural renewable resources for making clothes
ENVIRONMENTAL –Retailers use lot raw materials to produce their goods; they need to be aware of the natural habitats and the environmental effects. They also have to be aware of the legal effects for farm animals in health and safety

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