TESCO Vs M&S

TESCO vs M&S

Contents Page No's

Executive Summary 3 - 4

Introduction 5

Context 6 - 10

Overview 11 - 16

Ratios 17

Evaluation 18 - 21

Conclusions and Recommendations 22 - 23

References 24 - 25

Appendices 26 - 38

Executive summary

The objective of this report is to provide the board of directors of Marks & Spencer's (M&S) Group PLC with an analysis of the financial performance of the company. The evaluation of the financial situation should be used as a means to determine the long-term viability of the organisation in light of the recent downturn in the economy. The report was completed using the Moon and Bates CORE analysis model (1993). The scope of the report focused on group consolidated reports 2006 to 2010 and considers changes in accounting policy during this period. In addition to this the writer also uses various literature and articles to demonstrate market share and competitor activity during the period.

The report evaluation and subsequent recommendations rely heavily on the analysis of the ratio data over the selected period, whilst considering the context in which the company currently sits.

Key Findings

* Sales growth over the period is 23% in comparison to the nearest comparative competitor Tesco return of 44% growth.

* ROSF is in trend decline over the period

* Operating profit is in decline.

* The data in the report suggests that strategic decisions should be re assessed to consider ROSF and operating profit whilst considering the current macro economic climate.

Key Recommendations

* Regular strategy reviews should take place to consider the current macro economic environment and match corporate thinking to this.

* Market intelligence should be obtained in order to analyse the relationship between margins and growth.

* Competitor and consumer intelligence should be a primary focus for group in order to analyse opportunities and threats.

Introduction

Due to the recent downturn in the economy and potential impact that this may have on M&S, this report aims to evaluate the long-term viability of the organisation. The CORE framework (Moon and Bates, 1993) will be used as a guiding appraisal structure.

The report will conclude with key recommendations for the board of directors to consider as they assess the long-term viability of the company.

Context

This section of the analysis seeks to illustrate various aspects of M&S's external and internal environment and includes it's:

1. Current market position;

2. Current micro & macro-economic forces;

3. Current structure and strategy.

Current market position.

M&S operates in the retail sector of the market. It is an upmarket food retailer and notably, the largest clothing retailer in the UK. The diversification into household (continues to grow from this inception in 2000. As of 2010, the company has 1010 outlets, 690 domestic and 320 international outlets. The group ranks within the top 60 retailers worldwide. (http://corporate.marksandspencer.com/aboutus/company_overview)

During the previous 5 years 92% of total sales have came from UK domestic operations, (M&S PLC Annual report 2006 to 2010). M&S has competition within the different market segments of food, clothing and household. Since the group is competing as a single unit within these different markets, Tesco plc has been identified as a strong rival having a comparable product base and rank as the worlds 4th biggest retailer. For this reason, Tesco's financial results from the last five years will be used in order to gain a comparison of M&S' trend market position.

Graph 1. Shows comparison total sales figure trend 2006 to 2010 of Tesco and M&S.

Data source: Tesco and M&S annual reports 2006-2010 (see Appendix 4)

The data in Figure 1 clearly shows the market rival Tesco returning 44% sales growth over the period, whilst M&S has returned 23% sales growth over the same period.

The next section of this report intends to illustrate the economic forces that can influence the sales figures from Graph 1.

Micro & Macro current economic forces

Political, economical, social (culture, demographics), technological, legal and environmental factors, are all at play within any firm's macro environment. They are interrelated and one can impact upon and, at the same time, be influenced by the other. Jobber and Fahy (2009) write "a market orientated firm needs to look outward to the environment in which it operates, adopting to take advantage of emerging opportunities and to minimise potential threats" In turn, firms must respond to these factors and analyse their internal strategies, resource and processes and ensure they match with the external environment. A Pestle analysis for M&S has been carried out (See Appendix 5).

The macro and the micro environment in which M&S is operating in can be summarised using the Porter 5 forces model (figure 1). This model summarises the key economic factors that can influence an organisations performance and profitability. (Johnson et al, 2008.)

Figure 1. Michael E. Porter's Five Forces Analysis (2008) - Applied to M&S

A more detailed summary of the forces that can influence Marks and Spencer performance please see appendix 9

Current