The objective of this paper is to provide an analysis of Marks and Spencer, a U.K based giant retailer of clothing, home-based and food items. The paper focuses on understanding the competitive position of the company. In doing so, a number of strategic analysis tools including Porter’s five forces, PESTEL and Ansoff’s matrix will be used. The rest of the paper is organised as follows: section 2 provides a background of Marks and Spencer, including its history, geographical scope and products; section 3 provides a discussion of the analytical frameworks as well as their application to the analysis of Marks and Spencer; section 4 provides an analysis of the financial performance of the company as well as a valuation of the company vis a vis the performance and valuation of one of its major competitors, Tesco Plc, and section 5 provides conclusions and recommendations.
- Overview and Historical Background
Marks & Spencer Group plc (M&S) is a company owned by Marks & Spencer Group of Companies. The Company specializes selling products such clothing’s, food and other home products. Its accounted the Company gets its products from about 2,000 suppliers in the United Kingdom and around the world and about76, 000 workers are attested to be working for M&S including the United Kingdom and forty-one other countries elsewhere in the world. The Company provides womenswear and lingerie, kidswear, menswear in the United Kingdom; About 49% of its business is from clothing and homeware sales and the other 51% from food. It sells everything from fresh produce to partly-prepared meals, ready meals and. M&S has over 600 stores located in major and sub major cities throughout the United Kingdom.
Given the above info on M&S, it could be noticed its industrial segmentation is in the same with companies like Tesco and Asda of Wall Mart and so are obvious competitors in the Market. A close scan of its activities reveal certain unique information or factors identifiable with products or companies which fall at the Mature stage of their lifecycle (Pan, 2004) and such factors include: Features& brand diversification increases to gain more market share, Increased Competition leading to reduction of prices to gain profit, Volume of sales is at peak and Market Saturation tends to be reached. However, Mellahi et al, (2002, p.15) based on personal interviews Managers of Marks and Spencer holds an in-depth account of the activities of Marks and Spencer arguing that….” Marks & Spencer (M&S) was one of the world’s great retailers, enjoying legendary and iconic status, being often held up as one of the best managed and admired businesses in the world. Its ‘fall from grace’ has been spectacular and dramatic and the company is currently fighting for its life.” Thus making one to believe it is on its declining stage of its life cycle .In the same line Peter Drucker (1974) the so called “Management guru” also recognizes Marks and Spencer as Management giants (Tse, 1985, p.1) and names their management as exemplary in the world but considering their present state of affairs its hard to believe their management is that outstanding thus the view of Mellahi et al (2002, p .15) can be considered to be true.
- Evaluation of the most appropriate tools for analysing the environment facing Marks & Spencer in the 21st century.
There are several tools to use in analyzing the entire environment of an organization such as Marks and Spencer so in this work a combination tools are used including PESTLE and Porters Five forces
Every business is surrounded by layer environmental factors influencing the activities of the business. This outer layer is known as the macro-environment includes: – political, economical, social, technological, environmental and legal factors affecting the business.
It is relevant that an organization scans its environment before the marketing process the marketing process. Environmental analysis or diagnosis should always be continuous and attend to all aspects of planning. The marketing environment of an organization is made up from:
A). The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.
B). The microenvironment for example, our external customers, agents and distributors, suppliers, our competitors, etc.
- C) The macro-environment, for example: Political (and legal) forces, Economic forces, socio-cultural forces, and Technological forces. Also known as PEST
3.1 PESTEL Analysis of Marks and Spencer
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. One must consider issues such as:
Question worth asking under this are how stable is the political environment? Will there be any government policy that influences laws that regulate? What is role of government’s position on marketing ethics? How has government’s policy affected the economy? The United Kingdom government has done much designing calm and stable , easily to start business which are some of the things Marks and Spencer been benefiting for its growth to Maturity. As such Marks and Spencer has not had any politically related shocks. However since they operate in different countries, though there is no political challenge in the United Kingdom given the fact that they operate in different countries, they need to be careful observing political changes there that can affect them adversely.
Economic Analysis of Marks and Spencer
The U.K Economy and the wider global economy have witnessed significant developments over the last few years. One of the most significant developments has been the global financial crisis of 2007 to 2009. In addition, governments have taken measures to ensure that the economy remains stable. These economic changes have affected the U.K retail sector as a whole and Marks and Spencer in particular. Figure 1 below illustrates the total industry sales of the U.K retail sector.
Figure 1: Movement in Retail Industry Sales (Nov 2009 – Jan 2011
Source: Office for National Statistics (ONS) (2011).
The industry sales have been affected by a number of factors. Due to the global recession, the government and central bank decided to adopt easy monetary and fiscal policies. The Central Bank decided to reduce interest rates, government spending rose significantly. For example, in 2008, £500billion was used to bail out troubled financial institutions with the objective of increasing lending to both businesses and individuals, which will in turn boost aggregate demand. Figure 2 below shows how interest rates have fallen over the last 5 years. Quantitative easing in general led to a rise in aggregate demand, which accounts for the rising sales over the period January 2010 to November 2010. Sales declined slightly in November as a result of the snow (ONS, 2011).
Figure 2: Movement in Annual Interest Rates (2005 -2010)
Source: Plotted from Bank of England (2010) official figures
The decline in sales in November 2010 can also be attributed to austerity measures taken recently by the government. For example, VAT increased by 20% in January 2011. His rise in VAT could be part of the reasons for the slow growth in sales in recent months.
Given that the above economic factors affected the retail industry, they had a similar impact on Marks and Spencer and some implications for its corporate strategy. Tesco Plc has witnessed rising sales over the last
Figure 3: Marks and Spencer: Sales and Profitability (2001-2010)
Source: MSN Money (2011b)
It can be observed from above that Marks and Spencer’s sales have been somewhat constant but have overall maintained an upward movement over the past 9 years. Its profitability has also remained almost constant over the same period. Marks and Spencer has not witnessed significant growth in sales neither has it witnessed significant changes in profitability.
Social and Cultural effects on businesses are unique with each geographical region or cultural setting. Hofstede (1985) highlights an extensive account on the impact of national culture companies that go beyond boundaries .So considering these factors is very important to product design and manufacturing customers taste and needs be become even more disparate. To better get a good grasp on how these cultural issues influence business some basic questions on attitude, language and their life style towards products need asking, such as What are their attitudes to imported products & services? How does language barrier impact or affect the consumption or buying of the products in the markets? Do they spend much time in leisure activities? What is the equality ratio between men and women? What is the Individualism, Feminism and Masculinity, Ratio of different age groups within different countries?
Marks & Spencer has shops in different parts of the U.K. and other parts of the world such as Bombay. It is vital for Marks and Spencer to stay informed about various changes taking place in different countries.
These laws and guidelines placed on companies. Legal factors are those factors the place certain limitations or boundaries on how businesses operate. Such operating hours, minimum wage packages for staff in a particular country .Marks and Spencer has an obvious experience of the various restrictions in every country they are operating or doing Business in. For instance in Britain the minimum wage approximately £5.85/hr so companies like Marks and Spencer about to adhere to such guidelines, every working with them has to receive at least that amount per hour.
In recent years environmental factors have gained much importance to businesses especially since the incoming of Cooperate Social responsibility concept which helps them to build good corporate image to the society in which the business exist. The immediate society in which a business is locate is always interested and keen to know whether the product of the company such as Marks and Spencer are hazardous .The case of M&S is not so and so the environment or society they are located will probably not have a bad image about the company.
3.2 Porter Five Forces Analysis
To analyse the internal environment of Marks and Spencer, the Porter’s five forces model of competitive industry structure can be used. The five forces include bargaining power of customers, threat of new entrants, bargaining power of suppliers, threat of substitute products, and rivalry among industry competitors (Porter 1996).
- Bargaining power of customers
Marks and Spencer offers well differentiated products to its customers. The company has developed long-term relationships with its customers and makes reasonable efforts to manage and maintain these relationships. This has increased the loyalty that customers have on the company. Consequently, the bargaining power of customers is low. The selling of well-differentiated products and the establishment of long-term relationships has led to an increased in perceived quality which means that Marks and Spencer has more power in setting its prices. Despite this advantage, Marks and Spencer also offers a variety of generic products to a mass customer base. These products are also offered by competitors, indicating that customers have more power over the company in determining prices.
- Bargaining Power Suppliers
Marks and Spencer deals mainly with U.K based suppliers. The company has a diversified base of suppliers and has also developed long-term relationships with each supplier. This enables the company to determine its prices rather than accept the prices offered by suppliers. In addition, the company can easily switch between suppliers. This greatly reduces the bargaining power of suppliers against Marks and Spencer.
- Threat of Substitutes
Tesco and Sainsbury’s have introduced a lot of alternatives to the products offered by Marks and Spencer in recent years. This means that the threat of substitute products is high.
- Threat of New Entrants
There are significant costs of entry into the industry. Consequently, Marks and Spencer is unlikely to suffer significant threats due to new entrants. The clothing market in particular requires a lot of resources to be able to maintain it. Marks and Spencer has gained significant experience over the years. It has access to distribution channels and it enjoys economies of scale which cannot be available to a new entrant. In a nutshell, Marks and Spencer has acquired a number of core competencies or distinctive capabilities, which cannot be available to a new entrant. Consequently, Marks and Spencer can better meet the critical success factors that are required by customers than a new entrant would do.
- Rivalry among Competitors
Marks and Spencer is facing competition from other retailers such as Tesco Plc, Sainsbury’s Wal-Mart’s ASDA, Morrissons, Next Plc etc.
- Financial Performance and Valuation of Marks and Spencer
Table 1: Financial Highlights of Marks and Spencer
|Sales||9.77 Bil||58.88 Bil|
|Income||563.20 Mil||2.48 Bil|
|Net Profit Margin||5.70%||4.24%|
|Return on Equity||28.19%||17.99%|
Source: MSN Money (2011a, 2011b)
} Table above shows that Tesco Plc has more sales that M&S;
} Tesco Plc also has a higher level of profitability;
} Profit margin for M&S is greater than profit margin for Tesco Plc confirming further that Tesco Plc runs higher costs of sales and operating expenses than M&S;
} ROE for M& > ROE for Tesco suggesting higher return to shareholders for M&S;
} EPS for M&S > EPS for Tesco Plc;
} Debt-to-equity Ratio for M&S > Debt-to-equity ratio for Tesco;
} M&S is therefore a high gearing company than Tesco Plc;
} Valuation of M&S
} EPS = 0.35
} P/E ratio = 9.88
} Share price = .35 x 9.88 = £3.458
} Current share price = 350.10p = £3.501
} Therefore M&S is overvalued. This corresponds to a sell recommendation;
Valuation of Tesco Plc
} P/E ratio = 13.9
} EPS = 0.31
} Share price = P/E ratio x EPS = 13.9 x 0.31 = £4.309;
} Current share price = 407.9p = £4.079;
Therefore Tesco Plc is undervalued by the market. It is therefore a buy recommendation. Tesco Plc is therefore preferable over M&S.
- Conclusions and Recommendations
Based on the discussion above, Marks and Spencer appears to be in a good competitive position. In addition, it has maintained a proven track record as a profitable retailer. However, rising competition from competitors such as Tesco and Sainsbury’s is making things difficult for Marks and Spencer. As observed in the financial analysis above, the valuation reveals that Tesco Plc is in a more competitive position than M & S. Thus, Marks and Spencer needs to undertake a number of strategic decisions. Using Ansoff’s Matrix, the organisation can do one of four things. It may decide to offer existing products in existing markets; new products in existing markets, new products in new markets, or existing products in new markets. The best approach in my opinion would be to offer new products in existing markets, given that customer needs and tastes continue to change, though it could also offer new products in new markets as the existing markets appear to be saturated.
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