Does M&S have a future?

The country’s most famous retailer Marks & Spencer’s big store in London’s Kensington High
Street has just had a re-fit. Instead of the usual drab M&S interior, it is now Californian
shopping mall meets modernist chrome and creamy marble floors. Roomy walkways and
designer displays have replaced dreary row after row of clothes racks. By the end of the year
M&S will have 26 such stores around Britain – the first visible sign that the company is
making a serious effort to pull out of the nose-dive it has been in for the past two years.

Things have become so bad that M&S, until recently a national icon, is in danger of becoming
a national joke. It does not help that its advertisements featuring plump naked women on
mountains – the first-ever TV ads the company has produced – have met with an
embarrassed titter; nor that, last week, the BBC’s Watchdog programme savaged M&S for
overcharging and poor quality in its range of garments for the fuller figure. As the attacks
grow in intensity, so do the doubts about M&S’s ability to protect its core value: a reputation
for better quality that justified a slight price premium – at least in basic items, such as
underwear. It is a long time since any self-respecting teenager went willingly into an M&S
store to buy clothes. Now even parents have learned to say no. Shoppers in their thirties and
forties used to dress like their parents. Now many of them want to dress like their kids.
M&S’s makeover comes not a moment too soon. Compared with the jazzy store layouts of
rivals such as Gap or Hennes & Mauritz, M&S shops look like a hangover from a bygone era.
The makeover aims to bring it into the present. People tended to join M&S straight from
college and work their way slowly up the ranks. Few senior appointments were made from
outside the company. This meant that the company rested on its laurels, harking back to
‘innovations’ such as machine-washable pullovers and chilled food.

Worse, M&S missed out on the retailing revolution that began in the mid-1980s, when the
likes of Gap and Next shook up the industry with attractive displays and marketing gimmicks.
Their supply chains were overhauled to provide what customers were buying – a surprisingly
radical idea at the time.

M&S, by contrast, continued with an outdated business model. It clung to its ‘Buy British’
policy and it based its buying decisions too rigidly on its own buyers’ guesses about what
ranges of clothes would sell, rather than reacting quickly to results from the tills. Meanwhile,
its competitors were putting together global purchasing networks that were not only more
responsive but were not locked into high costs linked to the strength of sterling.

In clothing, moreover, M&S faces problems that cannot be solved simply by improving its
fashion judgments. Research indicates that overall demand for clothing has at best stabilised
and may be set to decline. This is because changing demographics mean that an ever-higher
share of consumer spending is being done by the affluent over-45s. They are less inclined
than youngsters to spend a high proportion of their disposable income on clothes.

The results of M&S’s rigid management approach were not confined to clothes. The company
got an enormous boost 30 years ago when it spotted a gap in the food market, and started
selling fancy convenience foods. Its success in this area capitalised on the fact that, compared
with clothes, food generates high revenues per square metre of floor space. While food takes
up 15% of the floor space in M&S’s stores, it accounts for around 40% of sales. But the
company gradually lost its advantage as mainstream food chains copied its formula. M&S’s
share of the British grocery market is under 3% and falling, compared with around 18% for its
biggest supermarket rival, Tesco.

Source: Wilkinson, N. (2005). Managerial economics: a problem-solving approach. Cambridge University Press.

Source: Does M&S have a future?’ The Economist, 28 October 2000.
M&S has been unable to respond to this competitive challenge. In fact, rather than leading
the way, it has been copying rivals’ features by introducing in-house bakeries, delicatessens
and meat counters. Food sales have been sluggish, and operating margins have fallen as a
result of the extra space and staff needed for these services. Operating profits from food fell
from £247m in 1997 to £137m in 1999, while sales stayed flat.

Perhaps the most egregious example of the company’s insularity was the way it held out for
more than 20 years against the use of credit cards, launching its own store card instead. This
was the cornerstone of a new financial-services division, also selling personal loans, insurance
and unit-trust investments. When, in April this year, M&S eventually bowed to the inevitable
and began accepting credit cards, it stumbled yet again. It had to give away around 3% of its
revenues from card transactions to the card companies, but failed to generate a big enough
increase in sales to offset this. Worse, it had to slash the interest rate on its own card,
undermining the core of its own finance business. And this at a time when the credit-card
business was already becoming more competitive, with new entrants offering rates as low as
5%.

If shrunk to its profitable core, M&S may become an attractive target for another big retailer.
At the moment, however, while its food division may be attractive to the likes of Tesco, the
clothing side represents a daunting challenge. Why take the risk now, when the brand may be
damaged beyond
repair?

Questions

1. Identify the main factors affecting the demand for M&S products.

2. Analyse the weaknesses and threats on the demand side of M&S, relating these to
controllable and uncontrollable factors.

Answers

1. The main factors which affected the demand for the M&S products are:

i. Tastes & Preferences: The chain has struggled in maintaining its everyday clothing
appeal with its on-going tough competition. Customers now want to dress more
fashionably than they have done in the past, and Marks & Spencer has been unable to
keep up with the pace of their desires. This has drastically made the demand for M&S
products to drop with time. However, if M&S wants to increase the demand for its
products in the market, it has to be ready to adapt to the emerging changes and keep
up with the pace of its competitors.

ii. Price of the Product: As the time has passed, the potential consumers of M&S have
realised that their products are very expensive due to the tough competition in the
market from their rivals who have also come up with the stores offering almost the
same kind of products as M&S is famous for but at cheaper price.

Source: Wilkinson, N. (2005). Managerial economics: a problem-solving approach. Cambridge University Press.

Source: Does M&S have a future?’ The Economist, 28 October 2000.
 iii. Customer's Expectations: Since M&S is a reputed brand, the buyers also expect
premium and good quality products from it. However, M&S is not being able to
provide its customer with up to the mark products. Not only its TV ads met with an
embarrassing titter but BBC’s programme also criticized M&S for overcharging and
providing poor quality in its range of garments.

2. Marks & Spencer has both weakness and threats on the demand side which can be
separated into controllable and uncontrollable factors.

M&S heavily relies on the British suppliers like its competitors and use foreign suppliers for
low-cost products which may lead to production of low quality products which may have a
negative impact on its market demand. This is a controllable factor as they have the option of
buying expensive quality products from other suppliers. M&S continues with its out-dated
business model which is another weakness which is also controllable as it can change its
policies. Another weakness is its out-dated fashion which is also one of the controllable
factors. The demand of M&S may set to decline due to the fashion judgement of M&S which
remains old style and by not keeping up with the fashion trend because of which the
marketing target of M&S is the women over-45s but bot the youngsters.

The threats on the demand side of M&S is the preferences of the customers that are
uncontrollable variables. Nowadays, the buyers in their 30s and 40s want to dress younger.
So that is the reason to M&S as a threat if M&S is not improving its fashion judgement.
Moreover, the competitors are also considered as the threat which is an uncontrollable
factor. M&S missed out the retaining revolution as compared to its competitor like Gap and
Next shook due to which the industry with attractive displays and marketing gimmicks and
their supply chains were overhauled and had a thorough idea that what the customers were
actually buying. Also, the biggest supermarket rival, Tesco of M&S had made M&S lost its
major advantage which is mainstream food chains. M&S was also not able to respond to the
competitive challenge but was only copying its rival’s features. Last but not least, the
demographics changed is another threat which is an uncontrollable factor. The change of
demographics has caused the overall demand for clothing of M&S which may be set to
decline since the ever-higher share of consumer spending done by the wealthy over-45s are
less inclined than youngsters to spend a high proportion of their disposable income on
clothes.

- Mahima Chopra
PM MBA-12

Source: Wilkinson, N. (2005). Managerial economics: a problem-solving approach. Cambridge University Press.

Source: Does M&S have a future?’ The Economist, 28 October 2000.