Marks and Spencer

Name Goes Here:

Name of University Here:

 Business Strategy

Table of Contents
1. Introduction ............................................................................................................................. 3

2. External Environment Analysis ............................................................................................... 3

2.1. PESTEL Analysis ............................................................................................................. 3

3. The Industry Environment Analysis ........................................................................................ 8

3.1. Porter’s Five Forces Analysis .......................................................................................... 8

4. Organisational Strategy Analysis .......................................................................................... 11

5. Recommendations ................................................................................................................. 12

6. Conclusion ............................................................................................................................. 13

7. References ............................................................................................................................. 14

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1. Introduction
Marks and Spencer (M&S) has been recognised as one of the most successful multinationals
operating as a high-street retailers from the UK (Thompson and Martin, 2010). M&S has 1,382
store across the globe coupled with an online presence to assure delivery of high quality products
in its three areas of business including the clothing, luxury food products, and home products
both in the domestic market (UK) and internationally (M&S, 2017). Within the food business
that accounts for up to 58% of the company turnover, M&S focus entails offering high quality,
innovative, and increased choice to the customers.

On the other hand, the clothing and home business accounts for up to 42% of its turnover as
the company offer high quality and own brand products. M&S has become the biggest UK
retailer in terms of value and has a leading market position specifically in Women swear,
Menswear, and Lingerie (M&S, 2017). M&S business models include growth and development
through fully owned subsidiaries, franchise, and joint ventures to provide high quality products
to its international markets. Moreover, the company ensures progressive online business
development in its international markets, meticulously delivered via localised websites of its
franchise and fully owned subsidiaries, as well as via collaboration with prominent marketplaces.
In addition, it is thought that the early growth of the company is attributed to its clothing
business meaning that M&S corporate model also entails diversification into other businesses
including food, beauty, gifts, and furniture business (Thomas, 2016). Nevertheless, M&S overall
success is centred on effective differentiation strategy ensuring that customers receive unique
and affordable products. This report focuses on critically analyzing and evaluating M&S
corporate and business level strategies in order to find out their effectiveness in assuring a
perpetual competitive advantage over M&S rivals such as Aldi and Tesco.

2. External Environment Analysis

The external environment of business involves critical situations and factors that influence
relatively the operations of business, however, which cannot be influenced or controlled by the
business. The PESTLE model and the Porter’s five forces are the two analytical instruments
employed in examining the external business environment of Marks and Spencer.

2.1. PESTEL Analysis

Table 1: Pest Analysis

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Effect on M&S
 Britain’s exit from EU – a The Brexit caused a dip in M&S
negative impact sales due to reduced consumer
 M&S entry into new markets is confidence.
supported by international M&S is also favoured by
markets’ political regulations encouraging political
Political
favourable to the business. regulations in international
 However, political instabilities markets that support business
in other markets such as Russia development such as Egypt.
has led to reduced sales Sales growth hampered by
turnover political instabilities
 Negative influences of the M&S suffers from increased
Brexit costs in shipments due to
 Currency fluctuations in the fluctuations of the Pound
UK and international markets Reduced sales turnover, owing
such as Russia to the reducing consumer
Economic  Increasing unemployment confidence
causing customers to have low Falling oil prices cause fears of
consumer confidence recession in Middle East
 Internationally, M&S is also economies causing franchise to
affected by the falling oil de-stock
prices
 An increase in the population A suitable opportunity for M&S
of millennials present a to consider implementing new
positive trend technologies including social
 Greying of the UK population media marketing and
Social
 Changes in UK’s multicultural engagement programs to target
make up due to increased the increasing millennials
migration levels Women aged over 50 form
M&S most loyal customer base

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but M&S has not put in place

any effective strategies to tap
into this.

M&S has adopted online

platforms for retailing. These
 Online retail platforms have enabled the firm to reach a
(ecommerce) wider market, enhance
 Advanced in-store technology - convenience, and cut costs.
Technological e.g. digital mirrors to create adoption of RFID has enabled
virtual, in-store fitting rooms M&S to facilitate better
 Radio frequency identification inventory tracking and
(RFID) technology. replenishment, but the firm has
not been very keen to adopt in-
store technology
Source: Adapted from Warner and Business Expert Press (2010).

The decision to exit EU by Britain impacted negatively on the sales of M&S due to a loss
in consumer confidence (Reuters, 2016). Figure 1 below shows the consumer confidence level

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Figure 1: consumer confidence level (M&S, 2016).

Nevertheless, M&S has realised increasing business development in international markets

mainly due to positive political regulations. Such international markets include Egypt where the
political reforms notable in reduce tariffs and taxes have assisted the entry of M&S in 2010
(ATKearney, 2011). On the down side, political instabilities in other international markets has
led to reduce sales turnovers for M&S. for instance, according to a press release in 2015, M&S
indicated that international sales slumped 2.1% due to political instabilities specifically in
Russia, Turkey, as well as Ukraine (Wood & Farrell, 2016).

Given Britain’s exit from EU, M&S has had to grapple with high importation costs
attributable to the weakening of the pound (Dentons, 2016). The fluctuations in the currency not
only in the UK, but also across international markets continue to affect M&S by having the
company reduce its shipments in areas such as Ukraine (M&S, 2015). The retail industry is also
negatively affected by the rising unemployment that causes a reduction in consumer confidence
as shown above and causing slower sales. Apart from this, M&S operations are negatively
affected by the falling oil prices, for instance, in the Middle East which causes fears of recession
in the economy and necessitating M&S franchise stores in these region to consider de-stocking
(M&S, 2015).

M&S has an opportunity to increase its sales by targeting the increasing population of
millennials. Thus, trend is realised across many markets including the UK and US. Generally,
across the globe, the millennials are deemed as the biggest cohort of the population at 60%

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(Pride, Hughes, and Kapoor, 2016). Boston Consulting Group (2012) forecasts an increase of the
millennials by 22 million in 2013 as shown below

Figure 2: Millennials in 2030 (BCG, 2012).

The millennials are described as having increasing disposable incomes and are
continuously seeking fashionable products for consumption (Pride, Hughes, and Kapoor,
2016).However, M&S must also implement technologies that are in line with the consumption
behaviours of the millennials including high utilisation of virtual channels and technologies in
purchasing (Jarvis, 2016). Leveraging on this positive trend would assure increased profitability
for M&S. another important concern relates to the increasing trend of customers seeking green
consumerism and offering patronage to companies engaged in environmental conservation

The greying of the UK population presents opportunities to M&S, given that women aged
above 50 form the retail chain’s most loyal customer base for clothing items. The UK
government considers its population as an ageing one as continued rise in the people aged 65 and
above was witnessed from 1974 to 2014 at 3.8% point to 17.7% (UK Government, 2016).
Projections in this age cohort points upwards and expected to rise by 6.6% point by 2039 (UK

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Government, 2016). As this segment has aged, it has become more fashion conscious and M&S
can leverage on this to boost the sales of its flagging clothing lines (PWC, 2015). At the same
time, generation Y tend to be also fashion conscious, and opportunities to tailor their products
appropriately to target this key segment exists.

Finally, technological progress has led to the emergence of online retail platforms
(ecommerce), advanced in-store technology (e.g. digital mirrors to create virtual, in-store fitting
rooms), as well as radio frequency identification (RFID) technology (PWC, 2015). M&S has
adopted online platforms for retailing. These have enabled the retail chain to reach a wider
market, enhance convenience, and cut costs. Adoption of RFID has enabled M&S to facilitate
better inventory tracking and replenishment.

3. The Industry Environment Analysis

The PESTEL framework established the key macro-environmental factors and how they
influence the clothing sector, however, the framework just provides a shallow summary of the
shape of the retail industry. Supporting the PESTEL analysis through the Porter’s five forces
enables a more comprehensive evaluation of the attractiveness of the industry that Marks and
Spencer is operating in.

3.1. Porter’s Five Forces Analysis

Table 2: UK Retail Industry Five Forces Analysis

Potential
influence on
M&S
 Robust barriers to entry including huge capital
investment making it difficult for new entrants.
This reduces threat of entry to M&S
Threat of  M&S is shielded by extensive differentiation, as LOW
new entry well as its huge scale that allows the benefit of
huge economies of scale
 High customer brand loyalty for established
brands including M&S

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 Difficulty of new entrants to access supply

chains as strong as those of incumbents such as
M&S
 However, retailing through the internet (Ocado
and ASOS) increases the threat of entrants since
it is cheap to enter the market through virtual
trading
 There are no substitutes for the products retailed
by M&S
Threat of  However, the main business for M&S considers LOW
substitution brick and mortar operations meaning virtual
retailers such as ASOS can influence significant
threat of substitution.
 The switching costs are low making bargaining
power high
Buyer power  The presence of virtual (ecommerce) business HIGH
allows customers to view and compare prices
increasing their bargaining power
 M&S forges supply agreements for suppliers to
deliver high quality raw materials due to the
firm’s capability to purchase in bulk, thus can
benefit from large discounts from suppliers. This
Supplier
shows reduced bargaining power of the suppliers LOW
power
 The firm’s private brand label offers significant
power to M&S over suppliers
 Low switching costs from supplier to supplier
thus reducing supplier’s bargaining power
 Very many competitors some of which match
Competitive
M&S scale HIGH
rivalry
 High concentration whereby dominance is

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among four companies including Tesco,

Walmart, Sainsbury and Morrison’s
 Low growth of the industry currently depicting
industry decline. This increases competitive
rivalry between firms

Source: Adapted from Porter (2008).

M&S faces high competition from other firms in the retail sector. The high number of
companies engaged in the retail industry increases the competitive rivalry. Moreover, retail
industry in the UK is declining as retail sales have fallen by 1.4 % for 3 months to March
2017(Davey, 2017).The decline would force retailers including M&S to increase their
competitiveness as they seek to retain existing customers whilst trying to increase market share
by taking the customers of the rivals.

The threat of new entrants to M&S is low given the strong barriers to entry including
huge capital outlays for new entrants. Moreover, the brand reputation, heritage association, and
brand strength of M&S commands significant customer loyalty that would make it difficult for
new entrants to attract customers from the incumbents. Even with the elements such as control of
strong supply channels by M&S, the threat of entry is increased by the burgeoning utilisation of
the internet by new competitors such as ASOS and Ocado to make sales of clothing, food, and
home products. M&S ecommerce site is perceived not to have won the high street customers
since these customers continue to shop online in rival companies’ sites and only visit stores when
considering M&S products (The Telegraph, 2014).

M&S retail products including food and clothes do not have any substitutes, thus making
the threat of substitution insignificant. Nevertheless, the continued adoption of innovation and
acceptance by customers who patronise virtual shopping can cause significant threat of
substitution. Despite M&S implementation of ecommerce website, customers in the high streets
have not fully adopted the system (The Telegraph, 2014).

Dransfield (2004) identifies how M&S being a large buyer of raw materials is able to
influence its suppliers to provide high quality raw materials at significantly reduced prices and

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discounts through supply contracts with the suppliers. Moreover, the switching costs between
suppliers are low as underpinned by M&S global outsourcing to search for competitive prices
away from British suppliers (Dawson, Larke, and Mukoyama, 2006). M&S private brand
provides the company with significant bargaining power over the external suppliers since the
firm purchases raw materials as opposed to finished products, also gaining major competitive
advantages from such operations (M&S, 2016).

The bargaining power of customers is high as underscored by the low switching costs
mainly because of the existence of numerous competitors and the accessibility of e-commerce
transactions that allow the customers to compare prices between rivals and chose those offering a
bargain. Weaker confidence among the customers due to increasing unemployment and the
Brexit (Reuters, 2016) means M&S sales might be negatively affected to push the firm to reduce
product prices and emphasise customer needs. For M&S, the firm needs to increase customer
loyalty and reinforce customer value, as well as convenience in ways unmatchable by rivals.
Moreover, a shift from the focus on product oriented strategy into customer oriented approach
should be considered. As opposed to concentrating on the M&S brand that is already established
with substantial heritage reputation, M&S ought to consider aligning its approach in line with
market trends that include a focus on customers in order to establish robust customer
relationships (Ruddick, 2013).

4. Organisational Strategy Analysis

According to Lussier & Kimball (2013), organisational strategy operates at three levels.
These are the corporate-level, business level, and functional level strategies. Referring to
corporate level strategies, M&S’ strategy involves enhancing its market share through
diversification (Thompson and Martin, 2010). At the business strategy level, the firm seeks to
build its brand through differentiation. It also focuses on cost control to achieve s sustainable
competitive advantage.

M&S has made use of the diversification strategy to grow its market presence. It has
added more products, while at the same time trying to retain its hold on areas in which it started
out with. The new areas, which the retail chain has diversified into, include financial services

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products, which are now offered under the M&S Bank and were launched in 2012, aiming to
build on M&S Money. This reflects the unrelated diversification strategy.

M&S also seeks to create and sustain a competitive advantage relative to the other retail
chains, through pursuing the business level strategy of differentiation. According to Tan (2016),
M&S has positioned its food products as a premium, and desirable, British product. This
positioning has been effectively achieved through the use of a suitable marketing mix and
striking communication activities.

Due to the external influences including the fluctuations of the economy brought about by
some major political decision including Brexit, M&S has had to consider other strategies
including costs reductions. With the Pound losing value over the Dollar, the importation costs for
M&S have been rising, thus necessitating the company to pursue prompt remedies as it tries to
avoid passing the rising costs to the customers (Spencer, 2015). One of the ways to ensure costs
are absorbed has been through improved sourcing including purchasing better raw material
volumes, which has generally resulted in the reduction of prices in more than 1,600 M&S lines
(Vandevelde, 2016).

5. Recommendations
Considering the analysis presented in the preceding sections of the report, M&S may
want consider the following recommendations in order to ensure that it improves its
performance. Firstly, since the international operations of M&S are not contributing much to the
retail chain’s overall performance, the firm needs to take another look at all its overseas
operations and to shut down the underperforming stores.

Secondly, it has been explained that the firm’s clothing division also imposes a major
drag on its financial performance. The reason given is related to branding: the retail chain retains
so many clothing sub brands, which makes its appeal both disorganized and confusing. Towards
this end, it is proposed that M&S considers repackaging its clothing fashion brand through
rationalising the number of sub brands under its fashion brand, and crafting a clear unique selling
proposition (USP) which it should then focus on selling. It should also refresh its lines more
often, in line with emerging trends, and provide the customers with what the customers want.

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In line with the PEST analysis, the firm should also invest in in-store digital technology
to boost customer experience. Moreover, it should consider introducing lines that are more
appealing to the generation Y and over-50 segments. The retail chain should also proceed with
its cost rationalisation strategy, which involves eliminating redundant positions and optimising
the supply chain. In view of the currency fluctuations, it should also consider hedging its
exposures to the global markets.

6. Conclusion
The report has reviewed the strategic choices and performance of M&S for the five-year
period spanning 2012 to 2016, and established that the retail chain’s performance has generally
weakened. This has been driven by underperformance in the firm’s international and general
merchandise (specifically clothing) businesses, although its food business continues to perform
well.

Some of the root causes of the poor performance have been cited as including: adverse
currency fluctuations, declining commodity prices, political instability in some of the countries,
and weakening of the Chinese economy. Various recommendations that can help address this
poor performance have been given. They include: optimisation of the supply chain, elimination
of redundant positions, repackaging of its fashion line, and rationalising the number of stores in
its overseas network.

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7. References
BBC. (2013). Marks and Spencer food sales offset clothing weakness. BBC. Retrieved from
http://www.bbc.com/news/business-22104228

Boston Consulting Group (BCG) (2012).The millennial consumer: Debunking stereotypes. US:
BCG.

Davey, J. (2017). M&S reports worst clothing sales fall for a decade. Retrieved July 2016, from
Reuters: http://uk.reuters.com/article/us-m-s-outlook-idUKKCN0ZN0EH

Dawson, J. A., Larke, R., &Mukoyama, M. (2006). Strategic issues in international retailing.
New York: Routledge

Dransfield, R. (2004). Business for foundation degrees and higher awards. Oxford: Heinemann.

Lussier, R. & Kimball, D. (2013). Applied Sport Management Skills, Second Edition (With Web
Study Guide). Champaign, IL: Human Kinetics.

Porter, M. (2008). The five competitive forces that shape strategy. Harvard Business Review,
86(1), 58-77.

Reuters. (2016) Here's how the Brexit Referendum is affecting the UK economy so far. Retrieved
from: http://fortune.com/2016/07/11/brexit-referendum-uk-economy/

Ruddick, G. (2013). Should M&S give up on clothes and focus on food? Retrieved July 2016.
The Telegraph. Retrieved from:
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10403348/Should-
MandS-giveup-on-clothes-and-focus-on-food.html

Spencer, J. (2015). Business Strategy: Managing Uncertainty, Opportunity, and Enterprise.

Oxford: Oxford University Press.

The Telegraph (2014). Marks & Spencer launches new website to replace Amazon platform.
Retrieved
fromhttp://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10647939/Mar
ks-and-Spencer-launches-new-website-to-replace-Amazon-platform.html

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UK Government (2016). Overview of the UK population: February 2016. Retrieved from

https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populat
ionestimates/articles/overviewoftheukpopulation/february2016

Vandevelde, M. (2016). M&S retreats from overseas markets in store shake-up. Retrieved from:
https://www.ft.com/content/e5c9dda8-a587-11e6-8b69-02899e8bd9d1

Wood, Z. & Farrell, S. (2016).Marks & Spencer suffers biggest clothing sales fall in 10 years.
The Guardian,

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