M&S

Marks and Spencer's Ups and Downs

M&S in 2003

First establishment of this company was back in 1880s by Michael Marks. It was known as a most recognized brand on a penny bazaar. As it started to expand and needed a support, it made a partnership with Tom Spencer, and since then Marks & Spencer steadily grew.

Ever since its establishment, appointing of CEOs was always inside the members of the founder's family or a lifetime employee. The first exception was made in 2000 when appointing Luc Vandevalde. In year 2003 the position of and CEO was given to the Roger Holmes, we was firstly made a head of M&S UK retailing, and latter on given this position when the former CEO wanted to withdraw.

Although during all these years Marks& Spencer steadily grew, their success and profits had a lot of ups and downs. There can be discovered a general trend. As it can be seen in Appendix 1 all the profitability ratios have reached their lowest point in 2001 and more or less increased to the same level in 2003 as it was in 1998. However in year 2003 they reported on their second successful Christmas period, which had risen their sales by 6.7 %, but on the other side at the beginning of the year company had to make further mark-downs because of the higher cost( compared to the year 2001), which lead to the reduction of their share price by 6 per cent.

In order to recover they had to make serious moves. Cutting its contractors and saving up to 20 m pounds per year, and introducing nationwide credit cards and loyalty card schemes, helped them in achieving a rise in both in profits and dividends. To keep M&S recovering the priority of the company was to focus on food and clothing, opening new 25 stand alone stores for homeware products, introducing new staff contact, etc. However not everything was as successful as planed.

M&S's success formula

Family control and especially Simon Marks' strong influence was really typical for this company from the beginning and truly characterized the course of business. The most important component of success was the applied structured formulas to all its operations and the set of core fundamental principles used in business activities. This led to a fully centralized company structure, where every decision was made either by the central management or by the well instructed store managers. High quality was really emphasized and was supported by mainly British suppliers, but only for a "reasonable" price.

Based on this, the competitive strategy was "Differentiation", selling good quality for a price a bit above normal.

Competitive advantages are determined by distinctive and reproducible capabilities. Distinctive capabilities are those characteristics of a firm which cannot be replicated by competitors, or can only be replicated with a great difficulty. In this case, such capabilities are the effective leadership, teamwork (family business) and tacit knowledge. These competitive advantages created the centralized and well controlled and organized company structure that defined the future of the company. Reproducible capabilities in this case are of course the replicable ones, like good supplier mechanism, quality control system, simplified operating procedures and as a result: good human relations with customers. Their unique combination gave the advantage that made this company successful till the late 1990s.

Symptoms of the downturn

M&S's downturn began at the end of 1998, when overseas developments were stopped, as they realized that in some of their target countries the expansion was difficult. The company started to experience financial difficulties around the same time. The reason for this was the emergence of constant competitors both within the UK and worldwide. With M&S concentrating on "classical, wearable fashion" (Collier, 2004:) it was not difficult for rivals such as GAP and Oasis (who focused on up-to-date fashion at a similar price range) to attract more customers away from Marks and Spencer. On the other side there were the discount stores who offered the same basic clothing items as M&S but with a more consolidated pricing scheme. The fact that the company did not adapt to the changes taking place in the retail market meant that the concentration on long-term strategies was impossible. M&S was behind rivals in such key elements as not having a store card and with managers being constantly promoted internally, the firm did not have any outsider view of how strategies should be formed.

Marks and Spencer decided to buy a large number of Littlewoods stores and refurbish them but it did not take into consideration the fact that its own stores needed to be renewed. This did not go down too well with customers and with overestimation of sales, the company suffered some serious loses in January 1999.

Basis of competitive strategy

The basis for the differentiation competitive advantage is providing better quality at a slightly higher price. M&S did not manage to maintain this competitive advantage. The perceived quality of the products for the customers declined and M&S did not manage to change this for a very long time and thus moved into a non-successful strategy. One option could be to change the basis for competitive advantage and instead offer products of average perceived quality at an average price. This could be maintained more easily. M&S however chose to try harder at maintaining the differentiation strategy and finally succeeded with the introduction of new brands. The basis of competitive advantage should not be changed with the right management of maintaining it.

Vandelvelde as a change agent

Vandelvelde had an important role as an outsider in the change process of M&S. He brought his experience with him from Promodes, the French food retailer. "He wanted to revitalize the domestic brand and then go overseas with an extensive expansion program." (Collier, 2004: 970) As analysts notes this would require a major change of the culture of the company. Therefore the scope of change is transformational and since the changes were built on former knowledge and resources the nature of change was incremental. As Vandelvelde notices himself he used the evolution type of strategic change. (Appendix 2)

Initially his idea seemed successful dues to the changes he wanted to implement. His main idea was to increase customers' trust in the company. This is why he made the service more customer focused. "We have got to start