Marks & Spencer Essay

Marks & Spencer Essay

Marks and Spencer is a leading UK-based retailer of clothing, foods and home ware. The 125 years old company has a very strong market position the UK with 665 stores besides presence in 40 countries through 291 franchisees (Datamonitor). At the beginning of the twenty first strategy, the company for the first time in over a century, changed its strategies in keeping with the changing times. In this paper, we shall discuss some of the strategic changes made by M&S and its affect on the company’s business.

History:

Marks and Spencer (M&S), Britain’s largest retailer, was started by Michael Marks, a Jewish refugee from Eastern Europe in 1884. It started as a market stall and initially sold everything for a penny. In 1894, Marks partnered with Tom Spencer to open the first Marks and Spencer retail store. These first stores had a very simple concept: low pricing and ‘courteous and charming shop girls’ (Cummings & Wilson, 2006). And for most part of its 125 years history, M&S stuck to this simple strategy, winning loyal customers. Michael Marks son, Simon Marks, took over the company at his father’s death and continued to head the retail giant until his death in1964. By 1980s, M&S had become a part of the British culture and employed over 70,000 people. The retailer’s growth story however came to a halt in 1998, when for the first time in thirty years, its half yearly operating profits fell by 23%. This fall in sales led to a total revamp of the M&S management at the beginning of the twenty first century. The new management introduced a new strategy which has helped the company get back the customers it had lost in the late 1990s.

The Old Strategy:

For over a century, M&S followed a simple strategy of offering good quality products at a lower price with the help of a dedicated work force. Simon Marks was extremely particular about the quality of the products sold at the retailer’s stores. “St Michael” logo was used a mark of quality on the store’s merchandise. M&S was able to maintain its low process by bypassing the middleman and dealing directly with the all British suppliers. Marks insistence on quality meant that M&S managers would often visit the suppliers to discuss the delivery systems, styles and fabrics, production routines and quality control. Since M&S was their biggest customer, the suppliers usually obliged to all their demands.

At the other end of the value chain, Marks took personal interest in his employees with an almost paternal interest in their well-being. This resulted in M&S employees being not only well trained and well paid but also extremely hard working loyal.

The M&S stores provided their customers with a selective range of basic essentials that were stylish and well designed and backed by the St Michael quality logo. All the stores carried the same range of the same quality to ensure customer confidence and to make it easy to return goods. This meant that M&S had a very simple operating procedure. Everything was highly centralized with the head office making all the decisions regarding the style and range of the merchandise. The R&D division at M&S worked with suppliers to come up with news fibres and fabrics which made the clothes comfortable and durable. These clothes met the aspirations of the growing middle-class.

Just like the clothes business, the food business also saw M&S coming up with several innovations, as they started using the advances in refrigeration to come up with the best quality food in their stores. In late 1970s and 1980s, M&S started international expansions under Sir Derek Rayner and Sir Richard Greenbury took the company’s pre-tax profits past the £1 billion profit mark.

The Downfall:

After almost a century of going from strength to strength and having become a cultural symbol, in the late 1990s, M&S profits began to fall. Greenbury made some over-ambitious policy decisions that back-fired. The company had made number of overseas acquisitions and probably overpaid for them. Their market share also slipped from 15% to 12%. The earlier strategy of carrying the same range of clothing in all the stores now began to backfire since the increasingly affluent customers were choosier. The customers had also become more fashion conscious, and M&S products were unable to meet their new demands. M&S had also avoided advertising its stores until then. But their first advertisement proved to be a damp squib. The falling profits also led to a lot of infighting among the top management.

In hindsight, it is not difficult to pinpoint the reasons behind M&S downfall. The biggest challenge was the changing demographics of the customers. The older customers were spending lesser percentage of their disposable income on clothes, while the younger customers were more discerning with individual tastes who did not identify with the “one size fits all” strategy of M&S. By 1990, the fashions would change must faster than they did during Simon Marks days and customers would often find the same clothes on all subsequent visits, resulting in a limited inventory. Another problem was that M&S sourced its goods exclusively from the British suppliers who were no longer able to offer competitive prices as the Pound Sterling strengthened against other currencies. This made M&S goods more expensive compared to other retailers who were increasingly sourcing from cheaper countries. Finally, the M&S managers had become so engrossed in the day-to-day affairs of the company, that they lost sight of long term strategic planning. The lowered profits also led to a lot of in-fighting, which hurt the retailer even more. Also the top-down management structure at M&S meant that the store managers did not have any say and they were not able to pass on customer preferences to their suppliers. M&S was also starting to get complacent about its quality. It was a mixture of all these factors which led to the fall in M&S profits during the late 1990s.

As the profits began to fall, the initial reaction of the M&S management was to press the panic button. This resulted in a bad situation becoming even worse. The company was reorganized into three units: UK Retail, Overseas business and Financial services. A number of top managers were sacked and several European and all Canadian stores were closed. They also came up with some discounting schemes to attract customers to the stores. The Food business, which had seen consistent sales until then, was also revamped, resulting in reduced operating margins. By the beginning of 2000, the situation at M&S had become really bad.

The New Strategy:

In 2000, Luc Vandevelde took over as CEO of M&S and promised to turn around the profit within two years. He came up with a number of strategies in keeping with the realities of the twenty first century. During the AGM on 11th July 2001, he discussed his plans to help make M&S the market leader once again (examstutor.com). The three point plan included focusing on UK, closing loss making businesses and changing the capital structure. He went on to discuss these plans in details. He went on to explain each one of these strategic plans in details.

Since the core business of M&S is based in UK, his strategy was to focus on the UK business and concentrate on the company’s strength in this regard. He decided to sell only Mark and Spenser brand at its store and to stop selling other brands to maintain the exclusivity of the store. They also introduced a new range of fashion clothing for women, designed by George Davis to woo back their British customers. The plan also included reconfiguring the supply base. Other issues that Vandevelde planned to address included developing food and home beauty buysiness, making better use of space and refurbishing the stores.

The second element of his plan was to sell or close loss making businesses. He realized that the only way to improve the UK operations was to stop all non-core activities. Following this decision, they closed down their Canada and Continental Europe subsidiaries. He also decided to close the loss making catalogue business which included a dedicated call centre and fulfilment centre. These were replaced by the e-commerce website, in keeping with the realities of the twenty first century. The third element of the plan was to revamp the capital structure so that the investors would get better value for money. Vandevelde went on to explain the only way the plan will succeed was by focussing on the three most important things, viz. Product, Stores and People.

Soon after giving this speech, Vandevelde went on to make it a reality. He changed some of the traditions of M&S so that the company would become more in sync with the realities of the twenty first century. For example, for over a century, M&S was a single format retailer. However, Vandevelde changed the ‘one size fits all’ traditional model in favour of a multi-format system. He identified ten different kinds of M&S including big city outlets, small city stores, food only stores, bigger outlet stores, new concept shops and small clothing and food stores. These stores were grouped on the basis of lifestyle patterns and demographics (Cummings & Wilson, 2006)

The next big thing was the supply chain. The traditional model of M&S involved the head office making all the decisions with little or no input from local store managers. This system was revamped so that the store managers were not only responsible for store sales but also had the added responsibility of feeding information regarding local tastes and back to the supply chain. The company also returned to the Simon Marks measure of revenue and profit per square foot. On the Food front, he went back to focussing on quality rather than quality or getting into price wars with its competitors.

St Michaels was originally used as a mark of quality. However, it had led to some confusion among the customers. So Vandevelde decided to reconfigure the branding of the clothes so that the arks and Spenser logo was clearly displayed while the St Michaels symbol of quality was placed on the inside of the garments (Cummings & Wilson, 2006). Other strategies geared to meet the requirements of the twenty first century included revamping the online business, and coming up with advertisements which showed some celebrities talking about their affection for the brand. All these steps helped M&S halt the decline in clothing sales and reverse the downward trend.

However, M&S is no longer content to sit on its laurels. Having learnt its lesson, the company can no longer afford to be complacent. It has realized that it needs to constantly reinvent itself in order to remain competitive. In a world where global warming has become a real issue, in 2006, M&S launched a “Behind the Label” campaign which highlighted the company’s environmental and ethical business practices.

Conclusion:

M&S was a leader in retain industry for over a century. However, complacency saw it slip from its leadership position towards the end of the 1990s. But the new management, led by Vandevelde has come up with new strategies for the twenty first century which have helped the firm get back its leadership positions. It is now upto the future M&S management to continue to keep this initiatives.

Bibliography

Cummings, S. and Wilson, D. 2006. The Rise and Fall and Future of M&S. In: Angwin, D., Cummings, S and Smith, C. The Strategy Pathfinder: Core concepts and micro-cases. Wiley-Blackwell.

Marks & Spencer Group, PLC SWOT Analysis. (2008, December). DATAMONITOR: Marks and Spencer Group plc., [online]. Available from: Business Source Complete database. [July 7, 2009].

Strategy Insight. Examstutor. Available from http://www.examstutor.com/business/resources/companyprofiles/marksandspencer/strategyinsight.php

Butler, S. (January 15, 2007). M&S to spend £200 m on green strategy. Times online. [online]. Available from http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article1292955.ece. [July 7 2009].

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