Marks and Spencer PLC SWOT Analysis Report

Marks and Spencer PLC SWOT Analysis Report

 

 

Marks & Spencer Plc

Strategic Evaluation

Swot analysis

Strengths

·         Strong brand name – Marks & Spencer is a long established brand fascia and has retained a loyal core customer base.

·         Food remains a core strength – The company has continued to develop its food retail business, which has continued to experience steady revenue growth due to its strong brand reputation, especially for product quality.

·         Prime UK locations – Marks & Spencer has maintained a high profile with some of the best retail locations of any player in the sector in the UK.

·         Popular clothing lines – Marks & Spencer has managed to turn around its image in its fashion and clothing lines, whilst not alienating its core consumer base.

Weaknesses

·         Limited retail space options – Despite the company’s intention to increase retail space by 20% up to 2010 finding the best sites will increasingly become harder. This will be particularly the case in its domestic UK market.

·         Geographical limitations – Despite moves to expand at international level through franchise agreements, Marks & Spencer has little presence in most markets outside the UK, and is absent from rapidly growing markets such as China and India.

·         Sector saturation – Marks & Spencer is heavily dependent on revenues from the department stores sector, which is highly mature in the UK. Growth in this sector is therefore slow, limiting opportunities for the company unless it can offset this by developing its position in the convenience stores channel, through Internet retailing, or internationally.

Opportunities

·         Further expansion in convenience stores – Marks & Spencer has long enjoyed a strong reputation in food retailing and has sought to extend its Simply Food convenience stores fascia accordingly. If the company can achieve its goals of extending its network to over 300 stores during the forecast period it has the opportunity of boosting revenues considerably.

·         Growth in international franchises – Marks & Spencer would benefit from expanding its franchise agreements in Asia-Pacific and in particular in China which continues to witness rapid economic expansion. As disposable incomes continue to rise it will provide an attractive opportunity for Marks & Spencer to pursue during the forecast period

·         Image enhancement – As the public debate over ethical trading, environmental issues and Fair Trade continues, Marks & Spencer is in a good position to take a firm lead in this respect and boost its public image further, as it has been an early mover in this area and has an ambitious environmental strategy. The ability to exploit the growing interest in the ethical shopping movement will provide the company with further opportunities to generate stronger customer loyalty.

Threats

·         Single market dependence – As Marks & Spencer continues to derive over 90% of sales from the UK, it is vulnerable to economic downturns in this market that cannot really be offset from sales in other regions.

·         Competition from grocery retailers – Other leading UK retailers, such as Tesco, Sainsbury and Wal-Mart, have moved beyond grocery to encompass a far broader range of products. It is now common to see these companies reaching into clothing, homewares and electrical sales. This extension into new product areas will place pressure on department stores operators and on Marks & Spencer in particular to further differentiate themselves from such aggressive players.

·         Major investment plans create risk – Despite the improved financial performance in 2005 and 2006, the company’s rapid expansion plans have the potential to overextend its commitments. As it develops its Simply Food fascia and makes inroads into hot food and electricals, the company does have many plans in development that it may find difficult to tackle.

Prospects for the Retailing Business

Strong growth in department stores in emerging markets compensates UK stability

·         At world level, the department stores channel is forecast to grow by only 6% over the 2006-2011 period, and could be even weaker in Marks & Spencer’s domestic market, where 4% growth is projected. The high level of maturity of this channel, combined with growing competition from newer rival formats such as Internet retailing and hypermarkets, will contribute to tough trading conditions.

·         The growing popularity of Internet retailing will challenge all the high street players, especially for sales of clothing and electrical appliances, two areas in which Marks & Spencer has interests.

·         In order to reduce its reliance on the UK market, Marks & Spencer opened around 30 new stores outside the UK in 2006. The group plans to continue opening a similar number of new stores annually over the coming years. The focus of such franchised expansion will be in dynamic emerging markets in Eastern Europe, Africa and the Middle East and Asia-Pacific.

·         Among the promising markets for Marks & Spencer’s expansion is India. Over the review period, the Indian Government started to relax restrictions on foreign direct investment in retailing by allowing foreign retailers to own single brand outlets. However, Marks & Spencer continues its partnership with Planet Sports, the Indian-based franchisee, and has plans to roll out up to 50 new stores in India between 2006 and 2010. One of its major competitors is the UK-based department stores operator Debenhams, which has set out plans to open up to 10 stores by 2010.

·         The department stores channel is expanding rapidly in India, while the retailing industry remains highly fragmented and relatively underdeveloped, and as the number of middle-class consumers increase in India, the demand for Western-style fashion retail chains will grow. However, domestic operators will remain active in emulating international brands and will have the advantage of understanding the market better.

Environment issues

·         As consumer concerns over the protection of the environment increases, this issue has been higher on the agenda for leading retailers. Although grocery retailers and the wider retail industry in the UK are increasingly aware of the benefits of developing green policies, progress in adapting their strategy accordingly has been slow. However, Marks & Spencer took the lead, by announcing in 2007 the launch of its Plan A programme to make its operations carbon-neutral by 2012, thanks to measures including more efficient transportation and reducing packaging waste and energy consumption.

·         In the UK, the retail industry came under the spotlight when the National Consumer Council investigated eight leading grocery retail chains in 2006 for seasonal food, organic food and drinks, sustainability and packaging waste and indicated that not enough is being done. Marks & Spencer was rated the third greenest supermarket behind Waitrose and Sainsbury’s, and this is an area where the company would benefit greatly by taking a lead.

·         Whilst organic products now have a firm place on the shelves in the retail industry, the green debate has widened, and is now also focused on transportation, packaging waste and recyclable or biodegrable materials so as to avoid unnecessary landfill disposal and associated pollution. The forecast period will see greater pressure to transfer goodwill into strong actions and commitments by retailers.

·         In addition to this, organic clothing is expected to become more commonly available in the UK high street, as illustrated by the announcement by Marks & Spencer that it will launch an organic cotton range. This is also mirrored by the launch by Tesco of an all-organic collection by London designer Katharine Hamnett in 2006.

Ethical issues become increasingly important

·         Retailing will be increasingly influenced by ethical considerations over the forecast period, as consumers will become more aware of ethical issues surrounding clothing and footwear retailing, which will lead to retailers coming under the spotlight. While some retailers will suffer in terms of negative PR and lose sales as a result, others will benefit from this trend as they take appropriate measures to boost their image.

·         In Spain, the clothing and footwear retailer Inditex cancelled over 300 supplier contracts in 2006 regarding issues such as breaches of labour-regulation, including child labour and discrimination issues. Many more companies will be driven to similar actions in order to offset a potential consumer backlash.

·         In the UK, the footwear and clothing retailer chain Primark has been cited as being the least ethical place to buy clothing by the Ethical Consumer magazine. Marks & Spencer it eager to raise its ethical profile, as it seeks to differentiate itself from rival chains with a lower price positioning, such as Primark.

·         However, by early 2006, Marks & Spencer engaged in an ethical marketing campaign entitled "look behind the label". The campaign highlights various ethical milestones that the company has achieved, such as banning battery-farmed eggs from its ready meals. Marks & Spencer will continue to develop its ethical standards and will increasingly become part of the company’s marketing strategy.

Growth in Fair Trade sales challenges the retail industry

·         As consumers became increasingly aware of issues regarding poor production conditions in emerging countries, Fair Trade-certified products became increasingly widespread. While they were initially mostly confined to food and drinks, the offer of Fair Trade clothes became more common towards the end of the review period.

·         Sales of Fair Trade goods around the globe grew by more than a third in 2005 according to the Fair Trade Foundation, and an increasing number of consumers embraced the concept. The UK is the world’s largest market, with sales reaching £195 million in 2005, up by 40%, and expected to increase by over 35% in 2006. Retailers such as Co-operative Group have been at the forefront of pushing Fair Trade products in the UK supermarkets channel for several years. As these products became more widely available in supermarkets, clothing and footwear retailers have also realised the opportunities.

·         Marks & Spencer switched its range of coffee to Fair Trade producers in 2006 and is now seeking to do the same through its tea ranges. However, perhaps in a more important step, the company also increased its range of Fair Trade cotton to around 70 items across its clothing ranges in February 2007.

·         As one of the first retailers in the UK to adopt such a strategy, the company hopes to ride the wave of consumer demand for Fair Trade-certified products. This marks a departure from the past, when the company had come under criticism for outsourcing to countries with dubious working practices, and comes as part of a broader strategy to link the M&S name not just to quality but also fairness.

·         Although Marks & Spencer may still have the lead, other retailers have likewise followed suit. Sainsbury’s introduced in February 2007 its first Fair Trade fashion ranges, and the clothing and footwear retailing chain Next also offers such a range. In the medium term, similar moves are likely to be taken by other major retailers, including the grocery chains Asda and Tesco in the UK.