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Strategic Analysis of Marks & Spencer Plc

Introduction

In a contemporary world of rapid environmental changes and globalization, any company striving for success understands the importance of appropriate strategic planning and implementation process. It is today’s reality that the company’s strategic objectives have to be continuously overviewed and adapted to the current environment that always creates both opportunities and threats to its business. The current research paper analyses key elements of the strategic planning process by using such tools of internal and external environments assessment as SWOT, PEST, Porter’s five forces, four corners, and value chain analysis on the case of Marks&Spencer Group, Plc. “How effectively and skilfully these activities are carried out will determine the eventual long-term success or failure of the business” (Campbel, Edgar & Stonehouse, 2011). Thus, the aim of this research paper is to apply tools of strategic analysis to evaluate M&S’s position in the market, its current strategy, and to propose recommendations for its improvement.

Discussion

1. Company’s overview

Established in 1884, Marks&Spencer (M&S) has a long history of becoming the UK's market leader in its segment. M&S is one of the leading British retailers with 852 stores in the UK and over 1300 stores globally. The current CEO, Marc Bolland, appointed in 2009, has impressive management experience in companies like Morrison, Coca-Cola, and UNICEF UK. Its business has two divisions: food products with 57% of turnover, and general merchandise taking 43 % (M&S Annual Report, 2015). The market positioning of the store is established by selling “high quality, great value products” (M&S Annual Report, 2015). Its significant presence across Europe, the Middle East and Asia with over 480 stores are supported by the operation of specifically tailored general merchandise GM websites meeting the unique needs of the buyers. The company launched its M&S.com website with over seven million registered users. Over the past few years, M&S experienced a fall in profit and a slowdown in GM's sales. However, as some stores in the UK were closed that resulted in an increase in the gross margin with a tendency of increasing sales and profit (Appendix 1).

The mission of the company aims at “delivering sustainable value for our shareholders and enhancing lives every day through the high quality, own-brand food, clothing, and home products we offer in our stores and online both in the UK and internationally” with a new strategy in place. They state the following: “We are transforming M&S into a stronger, more agile business - putting the right infrastructure, capabilities, and talent in place to drive our strategic priorities” (M&S Annual Report, 2015). Organizational structure is decentralized and multidivisional with Food, GM, Beauty, etc. divisions; however, flatter than it was before with one Chairman and one CEO guiding the company’s future direction. The CEO, Marc Bolland, revealed its company’s aim to become more agile to reach an ability to become more responsive to external shifts (M&S Annual Report, 2015). As Marc Bolland points out, this, in turn, necessitates changing culture and behaviors, and integrity is the main basis of such changes. To support this strategy, M&S developed four new core values: Inspiration, Innovation, Integrity and In Touch is at heart of all tasks done. These core values encourage and motivate employees to do different things, thus inspiring their customers with the highest quality and innovative products.

2. External analysis of the organization’s competitive business environment.

2.1. PEST analysis

“PEST analysis focuses on political, economic, social and technological forces that impact upon a specific business” (Ryan, 2004, p. 172). PEST supplements the SWOT analysis by assessment of external environmental forces in more detail.

1) Political forces

European integration and free trade agreements open borders to new competitors with an aggressive marketing strategy entering British and European markets. The European Free Trade Association (2015) aims at safeguarding the economic interests of its member states, such as Ukraine, Russia, Turkey, etc. At the same time, political instability in third countries threatens the company’s performance.

2) Economic forces

The number of consumers in the UK is rising since the economy is booming. Britain's unemployment rate fell to its lowest level in seven years assuming the rise in buying power. “The number of people classed as economically inactive fell by 22,000, to just under nine million in the latest period, the lowest for more than a year” (BBC News, 2015). On the other hand, economic stagnation with high Euro exchange rate for consumers in Central and Eastern Europe “with the largest output declines in Russia (-3,8%) and Ukraine (-5,5%)” presents a problem for business (IMF, 2015).

3) Social forces

Consumer’s preferences present opportunities and obstacles for a company. M&S is regarded as a high-quality clothing and food brand for middle-aged and older people who have a tendency to be loyal to one brand comparing to young people. Buying behavior changes due to technological advancement; thus, more goods are purchased online.

4) Technologic forces

Technological advancement plays a crucial role in driving business success. M&S has to invest heavily in technology in order to keep pace with the progress requiring “huge digital transformation strategy...: move platforms, hire an entirely new digital-focused team, and completely change its distribution” (Ratcliff, 2014). Launching M&S.com flagship has experienced many problems and still needs improvements. For example, in October 2015 M&S had to suspend its website again because customers complained that they could see other people’s details (Wilmore, 2015).

2.2. Porter’s five forces analysis

This framework helps evaluate the company’s competitive strengths and position in the market by conducting an analysis of five aspects (Appendix 3)

1) Competitive rivalry (High):

M&S faces high rivalry in the GM sector from such brands as Next and Top Shop, as well as Gap; it also has strong competition in the food industry from Tesco, Waitrose, and Sainsbury.

2) Bargaining power of buyers (High):

Buyer power is considered to be high as it is caused by high competition from other brands which can be chosen from as well as an adequate corporate responsibility approach of the company.

3) The threat of substitutes (High):

There is an increase in GM products of cheaper value imported from foreign countries such as China, Brazil, etc.

4) The threat of new entrants (Low):

This aspect is considered to be at a low level as many other retailers are also established. It should be noted that British buyers are more loyal to long-established brands.

5) Bargaining power of suppliers (Low):

The bargaining power of suppliers is low. M&S produces its own label; therefore, it can switch suppliers. Supplier power is higher in terms of specialized and digital product supply.

3. Internal analysis for an organization

3.1. Value-chain analysis

Porter introduced the concept of a value chain in 1985 to understand how companies can add more value and achieve competitive advantage through conducting an internal audit of the company’s systems. This technique applies to the analysis of the company’s primary and support activities (or the hidden factory).

Primary activities of M&S are those that add value to a product directly. M&S is “committed to building and maintaining collaborative, sustainable relationships throughout our supply chain and in the communities where we operate” (M&S Annual report 2015).

1) Inbound logistics. The origin of all the input materials and products are transparent. Thus, the first stage of the M&S supply chain is built through a reliable supplier base and quality products. Inventory replenishment is fast fulfilled within half an hour. M&S encourages and controls its over 3000 suppliers to comply with social and ethical codes (M&S Annual report 2015). The New Castle Donington distribution center has been recently opened.

2) Operations, i.e., manufacturing and assembling activities of the final product. M&S uses smart-packaging technologies to preserve the quality and freshness of food products. Such packaging also provides a strong brand association. Clothing products are manufactured using advanced technologies for quality control.

3) Outbound logistics. M&S uses the Multi-User Warehouse System, a tool that informs about the availability and delivery time of the product to stores and warehouses. Introduction of Shop Your Way service provides fast delivery of products "whenever and wherever the customer needs it” (M&S Annual report 2015).

4) Marketing and sales. M&S products are considered as unique and high quality. “The refreshed brand delivers a simpler, more contemporary look and, importantly, ‘Est. 1884’ celebrates our 131-year history, reflecting the value of our customer's place on our heritage” (M&S Annual report 2015). “Your M&S” logo has been recently launched to underline its uniqueness promoting the core brand. Marketing campaigns during Christmas and Valentine excelled the sales.

5) Service. M&S is committed to providing “best shopping experience” to its customers through fast product delivery, exchange and return policies, as well as telephone and online customer support service.

Support activities of M&S are those which add value to a product indirectly.

1) Technology development. Recently, M&S implemented a new business process platform EdiTrack (2015), which allows to track business processes along the whole supply chain internationally giving visibility and control over all the merchandise. The system produces real-time information on all shipments and history audit of all orders (Editrack, 2015). Digital Labs team works on M&S.com improvement, designs company's products, and creates “Cook with M&S app for the Apple Watch ahead of its UK launch” (M&S Annual report 2015).

2) The infrastructure is well developed generating effective competitive strategies. It consists of the company’s departments, retail stores, which are warehouses, which are critical for conducting a successful business. The physical infrastructure is supplemented by online store M&S.com. For the last year, 67 new stores have been opened in the UK (65 Simply Food). Two crucial pieces of infrastructure are implemented, but they need further improvement. M&S.com website and the automated distribution center in Castle Donington are two of the largest projects of their kind in Europe.

3) Human resources. M&S trains and develops its employees; they are dedicated to their company and care about their customers. “Our employees, trained to the highest standard, are united in their dedication to giving our customers the best shopping experience” (M&S Annual report 2015).

4) Procurement. M&S aims at selling products of high quality at moderate prices preserving the most reasonable ratio to stay ahead of competitor’s product offer. For example, it reduced the number of procuring linen fabric mills from 28 to 8.

3.2. BCG Matrix

BCG Matrix is a helpful tool to identify what are the company’s main marketing resources to meet its marketing objectives for growth. This tool is developed around two dimensions: markets share and growth potential. M&S has in its product portfolio a cow generating profits, a star that the company needs to sustain and develop further, and a question mark that presents a marketing opportunity to grow or it can become an unnecessary dog that a company should divest (Appendix 3).

Cash cow box: M&S’s food product and Lingerie with high market share and high cash generation, does not need much of investment for development.

Star box: Womenswear, Menswear products have big market share but have shown little growth. M&S.com flagship together with new Castle Donington distribution center despite having problems in operations during the year has strong potential to become cash cows with its further development.

Question mark: Kidswear and closing for youth that is still questionable whether it will give the equal return in terms of needed investment for development in order not to let it drop to the Dog box. Beauty products, even though considered as complementary to women’s clothing and lingerie, have not reached high growth or market share; but still can be turned into a star and cash cow. As the UK economy is recovering, the Question mark of the home product has also a potential for growth.

Dog box: Products of a premium class in a mature market has a very low potential for growth and generating revenue. Thus, they may be divested from the market.

4. SWOT analysis

A SWOT analysis is a valuable technique to identify the company’s main strengths, weaknesses, opportunities, and threats in order to position it favorably in the market (Appendix 2). The SWOT analysis “is often seen as a starting point of developing a business strategy (Campbel, Edgar & Stonehouse, 2011).

The analysis of M&S indicates the following factors:

1) Strengths (M&S Press releases, 2015):

· one of the leading UK's retailers in womenswear, menswear and lingerie sectors;

· diverse product portfolio: food, clothing, home, and financial products;

· food market is one of the most attractive to UK's consumers: + 3,3% outperformance in 2015;

· economy of scale;

· innovations1,700 new food products were launched over the year ;

· M&S.com success: sales up +34,2%;

· the first retailer which brought food and fashion merchandise together;

· a well-established image of high quality and Britishness;

· expanding overseas supply chain; trusted British supplier

· well-trained qualified employees and leadership team.

2) Weaknesses (M&S Annual Strategic Report 2015):

· GM sales are still weak (down by 1,2 %);

· the company loses customer loyalty;

· company's website needs improvement;

· product allocation and replenishment systems are poor;

· problems with the Castle Donington distribution center;

· weak product differentiation in the international market.

3) Opportunities:

· further development of e-commerce and gaining bigger market share;

· growing demand for stylish clothing;

· expansion of food, home and beauty products;

· further penetration into international markets in EMEA;

· a developing network of food stores internationally;

· new fashion for the younger generation.

4) Threats:

· strong competition from low-cost companies in the food market (TESCO, Waitrose) and GM market (Next, Zara, Top Shop);

· tough competition in the e-commerce sector (ASOS.Com);

· adverse movement in the Euro exchange rate in an international market;

· political and economic instability in Eastern Europe and the Middle East.

5. Assessment of the current strategy.

M&S created a new business model of long-term value through the most effective use of resources and relationships (Appendix 5). Marc Bolland announced its new strategic overview of “transforming M&S into a stronger, more agile business – putting the right infrastructure, capabilities, and talent in place to drive our strategic priorities” (M&S Annual Report, 2015). Plan A of social responsibility entered its third phase integrating across all aspects of the company’s strategy to undertake an ethical way of business. “As we continue the work to transform our infrastructure, we will now focus on consolidating our position as a leading international, multi-channel retailer” with main strategic priorities:

1) Food sales growth: continued innovation of new food products and opening new stores through developing a franchise network. Marc Bolland states that “Our Food business had an outstanding year in a sector that continues to go through profound change. In the most competitive food market of recent years, we delivered like-for-like growth in every quarter and maintained our margin” (Annual Strategy Report, 2015).

2) GM gross margin improvement through Direct Design Strategy: bringing new attractive design in-house targeting 60% by the end of 2016; reduction of material procurement creating efficiencies; improvement of GM4 replenishment and allocation systems.

3) Improving GM (Womenswear) performance: targeting middle-class consumers through joined-up marketing, featuring in fashion magazines (Vogue), strong editorial backing on M&S.com; introducing a Limited edition range; reducing customers’ complaints with the help of unique M&S Fit Development team.

4) Strong cash generation: prudent cost management; becoming more agile and flexible in doing business (i.e., tactical supply chain initiatives to push allocation of goods automatically based on customer demand).

The company’s current strategy shows that it goes the right direction of defending its Cows products through extensive innovation and marketing (Food and Lingerie), and development of its Stars (Womenswear and Menswear, M&S.com), including improvement of its supply chain. However, there is a drawback in the strategy of the multidimensional organization which may cause problems of syncing the corporate strategies with its divisions, especially geographical. Thus, to become a “leading international, multi-channel retailer”, it would need to adapt its strategies appropriately.

6. Strategic options for the company

The company may have a few strategic options:

1) Internationalization through further developing of food and GM franchise network not only in Europe and Asia but in South and North America. Going global would reduce its dependence on the UK's economy. According to Graham Ruddick (2015), M&S “lost its obsession with protecting its market share”, which is good because trying to maintain its market position by providing all things to all people is impossible. Instead, M&S refocuses its brand to move upmarket. Taking into account its biggest competitor, Tesco, “M&S is never going to be Britain's biggest food retailer - it is too expensive on everyday items - but the company is significantly outperforming the traditional supermarkets in terms of sales and profits” (Ruddick, 2015). Therefore, reinvestment of these profits in the strategy of internationalization will more likely give bigger returns.

2) Increasing GM market share in the home market to turn this business to be profitable by not only increasing gross margins (through reduction of a number of stores and value chain) but also turning its Question marks into Stars. Freddie George, the analyst at Cantor Fitzgerald, says that “the branding and the demographic and age profile of its customer being targeted remain unclear" (Ruddick, 2015). By designing a clothing line for young people and investing in marketing campaigns targeting youth, they will attract more customers to their stores.

3) Heavy investment in technology to improve value chain turnover and replenishment, as well as effective operating e-commerce business. "Pricing issues, due to a focus on improving gross margin, in-store service failures – such as an increasing number of out of stock items – and a website that is still suffering problems in search and functionality are all increasing shopper angst" (Rudick, 2015). These issues need to be resolved to reform them in a competitive advantage.

7. Best strategic option the company

The company should re-establish its GM market share in the UK market taking advantage of the recovering economy while focusing ongoing global through franchise stores and e-commerce. Understanding that the company is not able to outperform its main competitor Tesco in the UK’s food retail segment, the company should focus on delivering high quality and innovative products not only in the home market but also active development of an international franchising network.

8. Recommendations for strategy implementation

Entering new international markets necessitates deep analysis of consumers’ preferences in order to be able to use the right marketing mix suitable for unique customers’ needs while also favoring from selling British quality products. Enjoying its achieved economy of scale, M&S should improve the online shopping experience in the UK and international markets through investment in technology. The positive experience of online Kidswear stores in China, resulting “in exceptional year-on-year growth” (M&S Annual Report, 2015), should be used for opening other retail and online stores with quality and moderately priced products targeting middle class young and middle-aged consumers globally.

M&S should not overlook current fashion trends in different regions to attract and retain its customers. The attractive interior design of stores, excellent customer service, ethical approach to doing business, and interesting marketing campaigns underpin the company’s success in getting consumer’s loyalty on a global scale. To achieve that, M&S should provide extensive training for its employees to develop their customer service skills, knowledge of its values and living its brand globally.

Conclusion

To conclude, the analysis of external and internal environments helps immensely in creating the right strategic direction for a company aiming at achieving success. Marks&Spencer has significant strengths that should be used to reduce its weaknesses and overcome threats. Such strengths as good brand perception and recognition, economies of scale and diverse product portfolio will diminish its weakness of problems with technology implementation, increased competition, and reduced customer loyalty. Having analyzed threats and opportunities of M&S, it is clear that one of the best options for the company is to grow globally. The recovering UK economy escalates the purchasing power of buyers that should be taken as an advantage. On the other hand, political and economic uncertainties in the EMEA market should make the company enter other continents by undertaking marketing research to offer an appropriate marketing mix.