Marks and Spencer Case Study

Marks and Spencer plc (M & S) was founded in 1884 and as a small market stall in Leeds and has grown to become the biggest retailer in the United Kingdom. With 1,433 stores worldwide and employing approximately 85,000 employees, the company sells clothing, home furnishings, footwear, gifts, and food. M & S made its reputation in the UK in the early 20th century by selling only British-made textile products. The company was solely focused on the UK domestic market until the mid-1970s when it began expanding internationally. In 1960, M & S established the first Asian store in Kabul, Afghanistan. Fourteen years later, it expanded into Canada and also opened two shops in France in 1975.  M & S continued expanding globally, and today, the company has a global operation with stores in Australia, North America, Asia, Africa, and the Middle and Far East (Chislett, 2009). The company also established a financial services segment, the Marks and Spencer Financial Services, which offers personal loans, credit cards, savings, investment, pension plans, and insurance to its customers. Between 1985 and 2000, M & S established several subsidiaries mainly in the property development, finance, and retail sectors (Bevan, 2007).

M & S grew tremendously after the Second World War with turnover rising from $95 million in 1954 to $148 million in 1960. Although economic conditions were difficult during the 1970s, the company recorded excellent results. By 1984, turnover had reached $2.9 billion from $496 million in 1973 while profits increased from $70 million to $265 million during the same period (Bevan, 2007). Revenues and profits peaked in 1998 when M & S became the first British retailer to make a profit before tax of over $1 billion. However, due to intense competition, the high cost of using British manufacturers, and diminishing customer loyalty, the company experienced a financial decline in the period 1998-2001. Profits plunged to $145 million in the fiscal year 2001 while the share price fell by more than 60% (Bevan, 2007). The company carried out a company-wide restructuring in 2004 which strengthened the company’s financial footing. In November 2010, Marc Bolland, the then Chief Executive, launched a strategy to increase sales to $1 billion by redesigning M & S stores country-wide and discontinuing the sale of electrical products and its Portfolio fashion business (Thomas, 2016). By 2013, the company had recovered a considerable market share, occupying 11% of the UK market share. For the financial year ended 31 March 2018, M & S recorded group revenue of $10.7 billion and profit before tax and adjusting items of $580.9 million. UK revenue amounted to $9.6 billion of which 61% was from food and 39% from home and clothing (Butler & Wood, 2018).

However, M & S has continued to face a myriad of challenges, which has caused it to close 36 stores in the UK since the fiscal year 2016. It has also announced the closure of 17 more stores in 2019 and plans to close a total of 100 stores by the fiscal year 2022 (Butler & Wood, 2018). The problems are partly posed by a struggling UK retail industry due to changing customer preferences, shift to online shopping, the decline in disposable income of consumers, and the exit of Britain from the European Union (Brexit). However, in addition to the difficult business environment, M & S faces several challenges that are peculiar to it.

Overdependence on the UK market has exposed the company to domestic social and economic risks. Although M & S is a multinational company that serves over 33 million customers annually, the majority of sales are in Britain. In the fiscal ended 31 March 2018, $9.6 billion out of the $10.7 billion turnover was from the UK. The overdependence on the domestic market means that if the UK economy experiences challenges, the company is also affected (Butler & Wood, 2018). For example, Brexit is expected to result in a reduction in retail sales, domestically and internationally, and this will also affect M & S’s revenues and profits. Competition has also posed a significant challenge to M & S operations in and outside the UK. In the last two decades, many retail companies in the food and clothing sector have emerged and taken some of M & S’s market share. The major competitors of M & S include Tesco, Next, Primark, Asda, and Aldi. Although the company started redesigning its store layouts in 2000, some of its competitors such as Next and Primark started out with modern and appealing store designs and competitive pricing that naturally attracted customers. This has seen M & S lose a significant portion of its market share in the two decades. The company had a clothing market share of 13.5% in 1997 but has since lost half of it to competitors claiming only 7.6% of the market today.

Moreover, the shift to online shopping has also greatly affected the company’s turnover and profits. The internet has made it easier and more convenient to shop and compare products and prices from around the world. According to UK retail expert, GlobalData, 25% of clothing and footwear in the UK is now bought online. The switch from brick and mortar stores to shopping over the internet saves customers time and costs, given that most online stores offer free delivery. While the shift has benefited hundreds of small stores, some of which do not even have physical existence, it has posed a significant challenge to M & S as it struggles to adapt (Thomas, 2016).

The company has also lost competitiveness due to the failure to respond to changes in the business environment. It established a loyal customer base in the past, but that generation of customers is gradually getting older. Today, shopping habits have changed and so have customer preferences. An article in The Economist titled “Does M & S have a future?” published in October 2000 noted, “Shoppers in their thirties and forties used to dress like their parents. Now many of them want to dress like their kids” (The Economist, 2000). Research has shown that older customers are less likely to purchase new outfits regularly. M & S has not been successful in attracting the younger generation of consumers due to the inability to keep pace with the dynamic fashion trends. However, introducing keeping in touch with the new modern fashion trends may erode the identity of M & S and compromising quality, and the company’s management have to be careful in deciding what direction the company should take (Butler & Wood, 2018).

Another major problem that M & S has faced over the years is having too many stores. As at 31 December 2018, the company had a total of 975 stores in the UK only. In a digital age where consumers are doing most of their shopping online, M & S needs to increase its online presence and close some of its stores (Butler & Wood, 2018). The company plans to close 100 stores by 2022 and has already closed 38 stores in the UK alone. Moreover, most of its stores were refurbished a number of years ago, and today, they look outdated and therefore unattractive for customers. The stores are also costly to run given that they are mostly dependent on the head office. For long term sustainability, M & S needs to downsize.

M & S has made great strides in dealing with these challenges, but there is still more that needs to be done. In the last few years, the company has cut the number of stores, discontinued some of its international operations and also updated the design layouts of the remaining stores. It has also made substantial capital investments in automating its home delivery warehouse. In May 2016, the newly appointed Chief Executive, Steve Rowe announced that he would focus on revamping its clothing business by increasing quality and reducing the prices (Butler & Wood, 2018). He would also focus on cutting costs and increasing the availability and range of general merchandise. The reduction of the number of stores and senior executives and discontinuation of the company’s discounting policy has significantly reduced operational costs. M & S also appointed Jill Macdonald in October 2017 as the head of the company’s clothing business and Achie Norman in November 2017 as the Chairman (Butler & Wood, 2018). The management changes have so far not been effective given that the company profits declined to $589.7 million in 2018 from $614 million in 2017 and $684 million in 2016. However, Jill and Norman have a wealth of experience in fashion and retail respectively, and it is expected that they will turn around the company in the coming years.

In conclusion, M & S has faced many challenges in the last twenty years resulting from changing consumer demographics, difficult domestic and international business environment, competition, high costs of using British suppliers, and the shift to online shopping by consumers. The company’s management has acknowledged that changes in M & S’s business model are needed to regain market share and profitability. Reducing the scale of its domestic operations by cutting the number of stores and expanding its international base is key to maintaining and increasing profitability and value for shareholders. M & S also needs to adapt its products and stores to the younger generation without compromising its identity or the quality of its products.

References

Bevan, J. (2007). The Rise and Fall of Marks & Spencer: And how it Rose Again. Profile Books (GB).

Butler, S., & Wood, Z. (2018, May 23). Seven reasons why Marks & Spencer is in trouble. Retrieved from https://www.theguardian.com/business/2018/may/23/seven-reasons-why-marks-spencer-is-in-trouble

Chislett, H. (2009). Marks in Time: 125 Years of Marks & Spencer. George Weidenfeld & Nicholson.

The Economist. (2000, October 26). Does M&S have a future?. Retrieved from https://www.economist.com/britain/2000/10/26/does-m-and-s-have-a-future

Thomas, N. (2016, May 25). Marks and Spencer: conditions remain ‘challenging?. Retrieved from https://www.ft.com/content/6d52a355-f7c1-3f90-9d95-0ddd3370b597

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