The Business Performance of Marks and Spencer - Case Study Example

Topic: Marks and Spencer UK Report Analysis Name: Institution: Registration Number: Tutor: Date of Submission: TABLE OF CONTENTS 1. Summary of the Company and Historical background 2 2. The Company’s performance over the last 8 months 4 2.1. Share performance 4 2.2. Market performance 5 2.3. Marketing 6 3. The Company’s Fortunes 7 3.1. Economic Changes 7 3.2. Corporate governance 9 3.3. Strategic Direction 11 a. Value realization and Cost cutting measures 12 4. Conclusion 13 5. References 13 6. Appendix 14 Marks and Spencer UK Report Analysis 1. Summary of the Company and Historical background Marks and Spencer Public Limited Company started in 1884 under the initiation of Michael Marks who was later partnered by Tom Spencer. The main goods they traded in were British made goods in the 20th century but the policy has been revoked in the year 2002 and the company mainly deals in clothes, gifts, home property and food initially under the name Mark, but has been renamed Marks and Spencer in the United Kingdom (Zsidisin and Ritchie, 2008). In the UK, Marks and Spencer has made itself famous with more than 450 stores and its largest store is located at Marble Arch in London. In the year 1975, the company moved to Europe and other parts of the United States where they have increased their operations. Marks and Spencers that initially operated under the name Michaels did not have a limited time period on their return policy if a customer could produce a receipt (Weber and Da Silva, 2011). However, this policy has been reviewed in the year 2005 to 90 days and further 35 days in the year 2009.This company has been regarded as the most generous on the British High Street. However, the company experienced a problem at the end of 1990s as there was a plunge in their profits since there was a high cost of using British suppliers while competitors were taking supplies from low cost suppliers and also because the use of credit cards was not accepted by marks and Spencers due to a number of reasons (Wahlen, Bradshaw, Baginski and Stickney, 2010). During the downturn period, the company did not switch its trade with low cost suppliers from over seas countries as they considered it to be an act that undermined a significant part of its appeal to the public. These factors resulted into a sudden slump in Marks and Spencer profits and its shareholders, retails stores and the public in general were caught in surprise since both their share profit fell below the two thirds of original market price and their profits also declined (Ryan, 2004). In the year 2001, there were drastic changes that were incorporated into the business and the company started accepting credit cards and it also redesigned its activities such as reengineering its model and strategy, redesigning the stores, provision of the right amount of changing room that made the company fights its way to the UK market. The Company is a leading retailer in the UK with over 21 million buyers each week. There are a number of quality, stylish great value products as well as foods of outstanding quality that are sourced from suppliers from all parts of the world. The total number of employees in the UK is about 78000 people while the total number of stores is about 700 in the UK (Mathur, 2010). The company is a leading provider of women wear and lingerie in the UK. Its growth is including the sales of men wear; kids wear and home due to an increasing expansion of online business. Sales of clothing contribute to at east 49% of all the sales of the business. The other 51% is made up of foods that include fresh products and groceries as well as partially prepared foods that are available for consumption. The main materials found in the company’s archives include records that last as long as 128 years such as written records, staff publications, photographs, clothing and household items and design materials (Isenbaert, 2010). The company archive is made of exhibition area that showcases a number of historical and present products to the public. There are also a number of in room services for people who need to consult specific items from the collection that is supported by an online catalogue that supports remote research and access to the items. There are a number of events and services that are offered to schools, families and adult learners to ensure the public are engaged with collection and with Marks and Spencer. 2. The Company’s performance over the last 8 months 2.1. Share performance Marks and Spencer was considered the biggest bidder in the FTSE and was reported to a leading company on the shopping list of the UK private equity firm (Hallbauer, 2008). However, an analysis indicates that M & S is increasingly becoming vulnerable since there have been a string of disappointing sales updates. There have been reports that some investors are losing faith in the management system in an effort to revive the 128 year-old retail outlet. The Share price of M&S has dropped by 15% from 2005 to mod July 2012 but has since improved as rumors indicates that it has a possibility of improving in future (Grundy and Brown, 2006). After fostering an improved growth in recent years, the company share prices plunged further in the year 2008 and the company has struggled to cope with conservative shoppers in credit crunch. In the financial year that ended in March 1999, the company has altered its reporting for 52 or 53 week periods that ends on variable dates. Increasing fears of a damaging boardroom division has resulted into a reduction in shares of M&S by over 4.5% to 353p when a verdict was given on the disappointing performance of the biggest clothing retailer in Britain over the festive season. In December 29th, 2012 the chief executive Marc Bolland arranged a conference call where he insisted that M&S had not issued profits warnings, in spite of reporting a 1.8% reduction in sales for 13 weeks (De Broe, 2008). However, the highly unusual early release of the blue-chip company outcomes after they were announced piled more pressure on the Chief executive. M&S continues to determine the faith of investors in recovery process. There are new management systems that are likely to be implemented while the core motivation to expand sales in international markets has been constrained by movements of currency and macroeconomic difficulties in countries such as Greece. Appendix 1 provides the financial performance of M&S in the financial markets. 2.2. Market performance It was reported that the company experienced a decline in profits for three years in May as even the older and more affluent customers experienced the effects of the recession in Britain. This setback was followed by a double whammy in July following the compounding of first-quarter sales by departure of the long operating Kate Bostock by mutual agreement (Bhatia, 2008). There was a tumble in sales of clothing and home wares by nearly 7 %- a worst performance that has ever been experienced in three years. During the annual results, Bolland bounced back on a tree-year strategy to enhance UK group sales by at least £2.5 billion, and the effort to open more stores were halted. The share of the UK’s biggest clothing retailer in women’s wear also dropped from 10.9% to 10.4%. A detailed analysis indicated that the brands were not distinct enough (Zsidisin and Ritchie, 2008). The report from analysts indicates that M&S brands of clothing was not strong enough and the Board of Directors opted to hire Belinda Earl who is accredited to have the capability to build the Designers at Debenhams ranges. M & S was last in play in the year 2004 when Sir Philip Green made an attempt to buy the institution but the business was defended by Sir Stuart Rose whose offer of £9.1 billion did not bring sufficient support from shareholders (Weber and Da Silva, 2011). There have been a number of attempts to take up the company from several bidders due to the depressed share priced and attractiveness of the brands and the food stuffs sales. However, buyers have been made to raise large amounts of funds to underpin the deal. The market value of M&S is about £ 5.7 billion while the total debt is about £ 2 billion in addition to other pension liabilities that would make any buyer raise at least £ 7 billion to acquire the company. 2.3. Marketing During the times when the company experienced troubles at the beginning of 21st century, the selling logo used to be St Michaels for all its products but this has been discontinued in favor of Marks & Spencer that has been introduced to assist in product packaging and creation of a better image for the company (Wahlen, Bradshaw, Baginski and Stickney, 2010). A similar logo has been rolled out across fascias and carrier bags. When Steve Sharp became the marketing director of the company in 2004 after it had been hired by a new Chief Executive Sir Stuart Rose, a new promotional brand was introduced under the ‘Your M&S banner’ with a corresponding logo. This is now considered the company’s main brand in advertising, online operations as well as in-store merchandising. The only common thing between the new design and the previous design is that there is the use of M&S traditional green in the ampers in both logos (Ryan, 2004). The company has also run a number of newspaper and magazine campaigns and the introduction of some famous stars such as Twiggy and David Jason in a number of TV ads have enabled improvement of the company’s profile. The new look has played a significant role in the company’s recent resurgence, particularly with the success of a new clothing campaign that features the celebrated model, Twiggy and other related models with the bohemian styles of 2005 and 2006 and the TV ad campaign for the range of foods. 3. The Company’s Fortunes 3.1. Economic Changes As the business navigates through the short term, more focus is placed on long-term ambitions. A number of significant progresses have been made such as encouraging customers to reappraise M&S and take a closer look at what the company offers. The brand position of the company has continued to underpin a number of campaigns by creating awareness regarding unique products that make M&S truly special. Focusing on these particular innovations has resulted into increased sales (Mathur, 2010). The company has launched its first ever sub-brand advertising that supports the process of transforming the likes of Autographs Limited collections. In clothing and home equipment, the company has showed reduced sales by 0.9%. Strong performance was observed in men wear and kids wear and good growth was observed in the departments of bedding and bath, kitchen and dining but challenging conditions were experienced in women’s wear and in the ticket furniture. The act of withdrawal from technology impacted on home performance. The company has worked hard to ensure the pricing structure and promotions are relevant to customers. This involves balancing demand for items of great value and opportunities to invest in a number of improved ranges of products (Isenbaert, 2010). The management of the company has highlighted the style credentials of the core offering by creating M&S woman and M&S Man ranges that resulted into a positive response to its interpretations. The process of formation of partnerships was enhanced for ‘Only at Your M&S’where ‘Savile Raw Inspired’ was aired from a famous British tailor Richard James. A unique design collaborations were also introduced with Sir Terence Conran and Marcel Wanders. The company’s food business has delivered a better performance. There has been an increase in sales by 3.9% despite high inflation rates and low growth speed. M&S food is built on strong heritage of innovation and efficiency, with more emphasis on freshness and convenience. The emphasis on innovation has given customers more choice, with the launch of 1900 channels this year (Hallbauer, 2008). The company has also showcased great value for quality through bigger, higher impact promotions. The trust of customers for M&S quality has turned into most important occasions, helping the company to deliver a strong Christmas in Food. The company has continued to differentiate M&S as a specialist food retailer, through introduction of authentic deli and bakery counters and the launch of 100 ‘Unique to M&S international brands’. After the successful completion of the pilot process, new store format is being rolled at a rate of one store per day with the possibility of completing the activity in 2013. The new look stores is composed of defined regions for each sub-brand in addition to elements of the theatre in the Food Halls. According to customer reactions, this has made these stores more inspiring and easier to shop. 3.2. Corporate governance Marks and Spencer intends to measure its performance based on the UK Corporate Governance Code of 2010. The company has complied with the UK Corporate governance Code for a period of review and there has been a reduction in the number of independent non executive directors in the board such as the chairpersons have dropped by at least half according to the requirement of the code (Grundy and Brown, 2006). This has been influenced by the different timings between the retirements of Louise Pattern in July and Vindi Banga who joined the executive board in September 2012. The main areas of focus in leadership of the company include leadership, effectiveness, accountability and engagement and elations with shareholders. The governance of M&S is constantly reviewed and sets out the roles and the expectations of shareholders and structures. It also sets out matters that need to be settled by the Board of Directors. This year, the main theme of corporate governance of M&S has been maintenance of diversity in general. A further progress has been made in shaping the Board for the future, by ensuring that diversity is maintained at its heart (De Broe, 2008). From a practical point of view, the main area of focus will be on looking at a mix of skills and experience and the appointments will seek to complement these and ensuring a balance of gender and international boundary as the company becomes international multichannel retailer. The main area of focus of diversity maintenance has been on appointment of female directors. The company’s number of female directors makes up 30% of the board. Below, the Board level, managerial positions set aside for women account for 35% of the senior management (Bhatia, 2008). The company has also done several appointments across the broader senior management team to enable it benefit from international experience that is important as the company attains international presence. In July, 2011, Vindi Banga was appointed in a non-executive director position. As a result of joining the Board, a vast global experience has been attained in addition to consumer and brand knowledge. In February, 2011 Laura Wade-Gery was appointed as a member of the Board in the area of Multi-Channel E-commerce. In October 2011, Miranda Curtis was appointed as a non executive director. She joined the Board in February 2012 and contributes to a valuable perspective in international consumer business and technology. Laura, Miranda and Vindi were subjected to a comprehensive induction program when they joined the Board. Vindi and Miranda have also been nominated to membership of remuneration Committees. When the Deputy Chairman and Senior Independent Director, Sir David Michels resigned from the Board in February 2012 following the expiry of his second-three year term, Jan du Plessis was appointed as Senior Independent Director on March 2012 (Zsidisin and Ritchie, 2008). A part from maintaining the right succession of non executive directors, focus has been put on succession and development of executive team in addition to creation of a greater insight in development of future talent pool. Risk monitoring and ensuring the right governance support is a major objective of the company’s audit Committee. The company has an ambitious strategy and the scope of audit plan is focused on capturing the full range of business initiatives, while ensuring assurances on main practices and activities. The Audit Committee of the company has helped enhance the support for the Board’s activities. It is significant that the company drive towards the level of challenge and debate about the risks in addition to improving an understanding of risk appetite and tolerance as the business improves. 3.3. Strategic Direction Following a review of the business operation strategies of M&S, the Board announced in March 2001 significant changes that would be made to the group strategy and structure. The company will mainly focus on selling own brand products and brands owned by M&S to ensure quality is guaranteed to customers according to their expectation (Weber and Da Silva, 2011). The main areas of focus in the recovery plan are the delivery of significant improvements in appeal of the product, availability and value thus rebuilding the relationship with major customers of the company. The recovery plan for clothing will be focused on regaining the confidence of current customers in the quality and fits of its outfits. Te pricing will be sharpened by rebalancing the price architecture, enhancing the extent of entry-price merchandise and communicating the decision to customers. The company also focuses on expanding the growth of product areas such as Food, Home and beauty. Popularity of M&S foods continues to improve and customers have been loyal to the quality, innovation and convenience (Ryan, 2004). This business forms a major component for future expansion of the company and more channels are set to be made in new locations. The growth of home business is continuing to improve, with home furnishings and gifts being the fastest growing product areas. The growth of Beauty products is also improving, but at a slower rate. However, these areas provide vast opportunities for development and may be expanded. Store renewal program will also be expanded to enhance the rollout of successful elements of the new concept format under the plan to assist in refurbishing more stores at a reduced cost. At least two thirds of the retail space that makes up a total of 120 stores will be completed at the end of the current financial year, to bring more benefits to majority of M&S customers. The company is also focused on better use of space by reallocating to higher growth products areas that maximize returns per square foot (Mathur, 2010). Generally, 600000 square feet will be reallocated in the current financial year in areas such as clothing from George Davies suppliers, Home and additional beauty Shops. The other strategic move of the company is to be closer to customers by opening more stores in big cities 24 hours per day. In addition, more stores will be opened in the UK with modern design to create a more attractive easy-shopping condition for customers. These stores make up two thirds of UK stores. The total expenditure in modernization of these stores is estimated to be £100 million. a. Value realization and Cost cutting measures Marks and Spencer intends to focus its efforts in the UK business industry by divesting in close or non-core businesses and assets, on the basis of consultation with its employees. On strategy will be closing Continental European subsidiaries except the Irish ones. The company intends to close down its loss-making branches in France, Belgium, Germany, Netherlands and Spain. This will affect about 3350 jobs. The company’s expansion in the republic of Ireland is growing fast and at a high profitability, hence M&S remains a major participant in this business. When these stores will be sold, it is estimated that the budget will be £450 million, without considering the exceptional charges of restructuring that have been included in the P&L of 2001 (Isenbaert, 2010). The company also intends to dispose of its two major profitable United States businesses, Brookes Brothers and Kings Super Markets. It is estimated that the total sales price for these stores will be £550 million and £275 million respectively. The company also intends to reduce costs of goods sold using less suppliers and using suppliers from foreign countries, mainly from Asia. Presently, UK suppliers account for 70% of the total purchases. This percentage is intended to be reduced by 25% by reducing sales price to increase the amounts of profit. 4. Conclusion This report shows tat M&S has both greater potential for expansion as well as challenges that are likely to prevent its expansion. For instance, the shareholders have been disappointed by low performance of stocks in the stock market while other companies have been successful in foreign exchange trade. However, there are potentials that can escalate the process of expansion of the company. These include proper corporate governance that ensures diverse cultures are incorporated in production and the sales of new products to customers. In corporate governance, the main area of concern that needs to be addressed is diversity inclusion by appointing women in top managerial positions. The other area of improvement that the company needs to focus on is its strategic choices and positioning. The processes that the company needs to focus on include improving sales at reduced costs of operation in addition to recovery of the clothing factory by regaining confidence of customers in the quality of services and products of the company. The company also needs to expand its production of Foods, Home and beauty products by improving the quality and innovation in these products. More stores are also likely to be opened while space is intended to be effectively used for higher growth product areas. Cost reduction process can be achieved by investing in core business an assets in consultation with the employees. 5. References Bhatia, S. C. 2008. Retail management. New Delhi, Atlantic Publishers & Distributors. De Broe, L. 2008. International tax planning and prevention of abuse: a study under domestic tax law, tax treaties and EC law in relation to conduit and base companies. Amsterdam, IBFD, Academic Council. Grundy, T., & Brown, L. 2006. Be your own strategy consultant: demystifying strategic thinking - the cunning plan. London, Thomson Learning. Hallbauer, S. 2008. Retail marketing and new retail idea - Marks & Spencer. München, GRIN Verlag GmbH. http://nbn-resolving.de/urn:nbn:de:101:1-2010082814038. Isenbaert, M. 2010. EC law and the sovereignty of the member states in direct taxation. Amsterdam, IBFD. Mathur, U. 2010. Retail management Text and cases. New Delhi, I.K.International publishing house pvt. ltd. Ryan, B. 2004. Finance and accounting for business. London, Thomson Learning. Wahlen, J. M., Bradshaw, M., Baginski, S. P., & Stickney, C. P. 2010. Financial reporting, financial statement analysis, and valuation. Mason, Ohio, South-Western. Weber, D. M., & Da Silva, B. 2011. From Marks & Spencer to X holding: the future of cross-border group taxation. [Austin, Tex.], Wolters Kluwer Law & Business. Zsidisin, G. A., & Ritchie, B. 2008. Supply chain risk: a handbook of assessment, management, and performance. New York, Springer. 6. Appendix Directors ‘deals for Marks and Spencer Trade Date Action Notifier Price Currency Amount Holding 22-Feb-13 Buy Andrew Halford 377.3 GBX 3.000 0 11-Feb-13 Buy Dividends John Dixon 376.4 GBX 38 0 4-Dec-12 Transfer form Steve Rowe 0 20000 0 14-Sep-12 Exercise option Kate Bostock 371.4 GBX 249.6 0 Date Time Trade Price Volume Buy/Sell Bid Ask 5-April-13 16.00 376.876 65034 Buy 376 345 5-April-13 16.30 376.89 1003 Buy 376 376.9 5-April-13 16.20 376.40 258 Sell 376.40 376.80 5-April-13 16.40 376.50 284 Sell 376.30 376.4 Read More