Marks and Spencer: PESTLE Analysis - Case Study Example

Marks & Spencer” By 18 Mar Marks & Spencer (M&S) Introduction The company Marks and Spencer (M&S) is a retailer that started its business on a very small scale with a single stall in the 1880s and named it the Penny Bazaar. From there the company rose to being the one of the landmarks in the retail business in the United Kingdom. But with time the company saw dips in its profits and popularity. In this assignment, the dip in M&S business will be critically evaluated through studying the company comprehensively. ‘Marks & Spencer is going back to its roots and opening a stall in the place where the famous brand first started at Kirkgate Market, Leeds, in 1884.’ (“Your M&S” 2013) External Analysis In this section we will analyze the external environment using PESTLE analysis. Political The political environment for M&S has shown various turn and leaps. The changing governments all worked with the stable policies and allowed M&S no restrictions in trade both internally and abroad. However some things have been a part and parcel of the regional system where M&S operates and that is the tax rate which in this region of the world is higher as compared to other lucrative business grounds. But UK has given enough to the company and the company tackles the taxes in a responsible manner. Economic The United Kingdom has a stable monetary policy and a good employment rate. M&S enjoys a good working condition in the region but as we all know the world has become a global village and one cannot one suffice with a good local market. Events like the global financial crises and the financial crises of 2008 have effected operations of M&S as well evident from its annual statement. So the company has to keep scanning the environment for economic downturns in order to be proactive rather than reactive Social The company needs to focus on the youth and their vibrant styles as these are the ‘in’ of the fashion world. The company was also blamed for the lack of segregation and to be wholesale oriented in their clothing arrangement rather than customer focused. ‘The main problem faced by M&S is the loss of customers in its key womenswear market and its failure to attract new, younger shoppers amid competition.’ (Evans, 2012) Technological The company worked on traditional systems that employed traditional policies and an autocratic environment. As a result the company was behind the introduction of credit cards and the loyalty schemes which were started in the 2000s. The competitors who were using credit cards coupled with loyalty schemes and reward points grabbed the attention of the customers making M&S fall behind on the technological front. Legal M&S has abided by the UK laws in a responsible fashion and the company performs all the necessary checks on the operations that are required by the UK rules and regulations, However, The company also witnessed employee strikes due to closure of its stores in France and was faced with manifestly illegal trouble making fine as the company broke the French employment law. As Vandevelde knew the French law inside out, this fine had serious effects on the company’s image. Environmental Marks and Spencer has been aware of its environmental responsibilities and has helped the environment with campaigns that involve recycling and using equipment that reduced the CO emissions in the atmosphere. However the company had a major setback in 2011 when during a refurbishment it used cancer causing material for one of the stores’ ceilings. ‘The Marks & Spencer shop in Broad Street, Reading, was being refurbished when ceiling tiles containing the cancer-causing material fell to the floor.’ ("Marks & spencer," 2011) Scenario Planning Best possible scenario The demand for M&S core product its clothing line will soar to almost double its demand today due to changes in consumer tastes, more players coming in the field or increase in the GDP and as a long term result increase in the purchasing power of the customers as a whole. As a result of more competition, new and innovative changes will take place as a result of that research and development will have to be paid more attention to than the way it is treated currently. Because of considerably good earnings and better revenues, M&S would be able to cater in a better way to the overseas market. Worst possible Scenario Demand and supply patterns will be adversely affected due to economic down turns. New entrants will probably be discouraged and competition will prevail only among a few players due to which price wars will ensue and leave the customer with a low bargaining power and no satisfaction. This power would also be affected by the rising inflation. Strategic Alternatives a. Best Scenario Alternatives As a result of more competition, more players and increasing demand, and acceptance to new trends, M&S will have to invest more in R&D. Technology would have to be improved to meet the soaring demand for more capacity increase or existing capacity utilization. b. Worst Scenario Alternatives Aggressive advertising would have to be done in order to combat the resentment as a result of the low purchasing power of the M&S buyers. As a result of the adverse effects on demand and supply, distribution channels and online marketing would have to be strengthened. Ansoff Matrix M&S will have to select strategies and focus on the fronts that would cater to their best and worst possible scenarios. In order to cope up with the increasing demand and competition in the best possible scenario the company needs to adopt the Product Development strategy in the ansoff matrix. Whereas for the worst possible scenario market penetration through advertising is a strategy that will pay off well. Porter’s Five Forces Model The bargain power of buyers for M&S is high with the increase in the number of players in the clothing business and the buyers have more options to buy from. Also the changing fashion gives the buyers more opportunity to shop giving them edge over the sellers. The bargain power of supplier is medium as M&S deals with a fixed set of suppliers it’s a mutual relationship but the suppliers have to do their 100% in order to get their orders passed giving then a medium but not a high bargaining power. The threat of new entrants is high as more and more competitors are entering into the market. The fast changing fashion gives all the potential players a strike at the business and if the customers like their designs the new entrant becomes the new name in the market. The threat of substitutes is high as the customers have a huge variety to choose from due to the ongoing changing trends in fashion world. The rivalry among competitors is high with more and players entering the business like Oasis, Next, Gap and George and higher brands Mango and Zara fighting for the top position. Lifecycle The product lifecycle analysis shows that M&S introduced in 1884 saw major growth in the till 1900s in its clothing line. Although the sales have dipped in 2000 and beyond the clothing line of M&S is in its maturity stage. Strategic group analyses PERCEPTUAL MAP Brand -High Zara Mango Next M&S Gap George Perceived Quality- Low High Low Internal analysis Value Chain The value chain at M&S consists of the suppliers and the seven departments that make the company present its product in the market. The feasibility and sustainability better explains the value chain addition of M&S (see appendix A) Strategic Capabilities M&S focused on the UK suppliers as a traditional approach to resource management. As seen from Simon Marks era, he used the same UK retailers and then personally used to assure the quality of the supplies himself meticulously. The strict quality check from the start till the end validated the St. Michael logo for quality. Generic Strategy of M&S The generic strategy of M&S is based on the basic apparel and the company has built up a loyal customer base who buys the basic apparel for its quality and value for money. Further the company restructured into seven business units: lingerie, womenswear, menswear, childrenwear, food, home and beauty. Portfolio Management The portfolio for Marks and Spencer deals with three main products. Its clothing, the simple food chains and the financial services. Locating the main products in the BCG matrix can be seen as follows: Clothing Lingerie – Cash cow Womenswear – Cash cow Menswear – Cash cow Childrenwear – Question Mark Food – Star Financial services – Dog SWOT Analysis The strengths of M&S include its loyal customer base and the stringent quality controls right from the supplier stage till the finished product. ‘Marks and Spencer has high visibility with customers and product reputation that most retailers would envy.’ (Stanley, 1991) The customers of M&S enjoyed personalized in store guide for example Vandevelde hired 4000 extra staff just to assist the customers on the shop floor. The autocratic structure and the lack of focus on the fashion styles, segregation and new trends are the major weaknesses of M&S. The increasing in the awareness of the M&S brand can be achieved through collaborations and increased advertising. ‘The retailer has agreed a three-year deal with the British Fashion Council to collaborate on the launch of new clothing collections, supporting domestic talent, and increasing its sourcing from the UK.’ (Graham, 2013) Grabbing these opportunities can help M&S both in the short and long term. Also advances in technology could be one of the major opportunities that need to be looked into by M&S. An example of this is the item-level tagging started by M&S. ‘According to M&S, item-level tagging of its clothes offers the benefits of knowing exactly what stock is in each of its store.’ (Collins, 2004) The company faces threats from increased competition and the global market upheavals in the future. Conclusion & Recommendations Looking at the financial highlights (see appendix B) M&S shows a promising future but the recovery road will not be smooth and following are some of the recommendations to ease the transition of M&S into high profitability: Increased customer focus Increased attention to detail on customer preferences RnD activities to understand the changing trends in fashion Increased employee focus and better employment plans Decentralization of authority A flat organization structure Proper overseas planning and restructuring Abolishment of bonus schemes for executives Diversification of suppliers Continuous improvement in product quality focusing on the original M&S image These recommendations will help M&S stay more focused and work to please the customer thus gaining back their loyalty and improving the company’s profit picture. References: Collins, J. (2004, Feb 10). Marks & spencer expands RFID trial. RFID Journal. Retrieved from http://www.rfidjournal.com/articles/view?791 Evans, P. (2012, Nov 6). Marks & spencer profit declines 10%. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052970204349404578102141616555644 Graham, R. (2013, Feb 19). M&s turns to best of British for clothing revival. The Telegraph. Retrieved from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9881492/MandS-turns-to-Best-of-British-for-clothing-revival.html Marks & spencer fined £1m over asbestos risk. (2011, Sep 27). BBC News Berkshire. Retrieved from http://www.bbc.co.uk/news/uk-england-berkshire-15081278 Stanley, J. (1991). Marketing communications: How marks and spencer does it. European Management Journal, 9(3), 329-333. Your M&S (2013). About us - Our History. [Online] Retrieved from: http://corporate.marksandspencer.com/aboutus/ourhistory [Accessed: 20 Mar 2013]. Appendix A: Suitability, Feasibility and Acceptability Model Strategy Suitability Feasibility Acceptability Factors Internal Factors Internal Risk and return Market Extensions -Low cost of production in the sub-continent -High fashion sense and demand -High brand image -Strong HR -Environment friendly appeal Operations/ project with positive NPV and IRR should be undertaken Increase RnD Exploring fashion trends RnD Budgeting available High return due to target market size Outsourcing -Fast Technological advances -Specialization in website design and control required -M&S direct established after 2000 -Increased sales yielding higher profit Joint Venture -Using Synergy -Utilizing ‘Per Una’ Experience -Fresh ideas yielding greater return B: Financial Data The graphs have been plotted using the key performance measures of M&S (http://annualreport.marksandspencer.com) Read More