Strategie International De Marks & Spencer

MARKS & SPENCER: A CASE STUDY IN INTERNATIONAL RETAILING

Ilan Alon, Ph.D.Assistant Professor of International Business Department of Business Administration and Economics State University of New York Brockport, ialon@brockport.edu

April 28, 2000

INTRODUCTION

This case study describes the internationalization of Marks & Spencer (M&S), a giant British retailer. In recent years, the company has suffered a series of misfortunes, both at home (Britain) and abroad. Company sales have dropped, stock prices and market capitalization were substantially reduced, and overseas profits have declined. In January 1999, following a terrible earning announcement, the company announced that it had formed a marketing department, forcing the company to become more proactive and market driven. To head the department, M&S promoted James Benfield, a 17 year veteran of the retailing giant who worked as a former head of menswear, home furnishings, and direct mail.

For years, M&S’ marketing philosophy was simple: produce high quality products under a recognized brand name at affordable (but not cheap) prices, and advertise through word-of-mouth. However, in recent years, this marketing philosophy has come under attack as the company started loosing its competitive stance. The move to develop a marketing department was a departure from a long tradition of production/manufacturing emphasis. The problem facing James Benfield: how can M&S emerge from the slump and reposition itself as a fierce global competitor in the international marketplace?

BRIEF BACKGROUND ON COMPANY

Marks and Spencer of Britain (often referred to as Marks & Sparks by locals) is a general retailer that sells clothes, gifts, home furnishings, and foods under the St. Michael trademark in the UK, Europe, the Americas and Far East. The company also operates financial services segment, which accounted for about 3% of the company’s 1998 profits (Dow Jones Industrial 1999).

Marks & Spencer (M&S) started as a stall in 1884 by Michael Marks in the Leads market using a L5 loan from a wholesaler. The company stressed value and low prices as a hallmark for development. By 1901, the company acquired 35 outlets as well as a new partner, Tom Spencer. By 1949 all the company’s stores carried mostly private label (St. Michael) products produced by British suppliers (De Nardi- Cole 1998).



For many years the company’s mission has been to offer consumers quality, value, and service. The company relied on five operating principles to achieve its mission:

(1) Developing long-term relationships with suppliers,

P.1 (2) Providing value through a narrow merchandise selection at affordable prices,

(3) Supporting local (British) industry (De Nardi-Cole 1998),

© Ilan Alon – Ph.D.Assistant Professor – New York

(4) Promoting from within (The Economist 1998), and

(5) Using a single brand name St. Michael for most of its products (Financial Times 1999).

These operating tenets have gained M&S the support of British producers, consumers, and workers. The sixth largest employer in British manufacturing, the textile industry, with over 354,000 workers, owes a large part of its existence to M&S (The Economist 1999c). M&S has encouraged British textile manufacturers to keep factories at home, which led to a better check on quality and more flexibility in manufacturing and distribution (The Economist 1999c). The British have responded with affection. A British writer described M&S as "quintessential British institution, woven into the fabric of our national life, as firmly lodged in our psyches as furniture in the front room" (Financial Times 1999, p. 10).

CURRENT BUSINESS SITUATION

Using the business model described above, M&S had achieved impressive growth rates and market shares in many of its business segments. By 1994, the firm had 18% of the UK retail market, 33% of women’s undergarment market, and 20% of men’s suit market (De Nardi-Cole 1998). The company has 40% of the nation’s underwear market and 14% of the clothing market - only retailer in Europe to have double-digit market share (Financial Times 1999). M&S food market share has been around 4.3% (M&S Press Releases 1999). The impressive market shares have gained M&S the reputation of a leading retailer in the United Kingdom.

The euphoria, however, did not last as M&S caught investors and business spectators off guard. In 1998, the company’s stock fell 34% (Business Week 1998). Pretax profits fell by as much as 41% (to $1.09 billion) and market share declined, for the first time in years, by almost 1% (The Economist 1999a). In May 1999, the company reported full year profits of L630 million, a 50% fall from 1997-1998 (Financial Times 1999). Warburg Dillon Read, an investment bank, reduced its profit expectations for M&S by 10% for 1999-2000 (Dow Jones Industrial 1999). Overseas profits have declined from their 1996-1997 high of L100 million (Financial Times 1999) to a loss of L15 million, before exceptional items, for fiscal year 1998. Sales measured in local currencies were down by 3% (M&S Press Releases 1999). Table 1 shows the financial snapshot of the company. It also compares key financial measures of M&S (Britain’s leading retailer) with those of Wal-Mart (US leading retailer).

TABLE 1: SNAPSHOT OF MARKS & SPENCER COMPARED TO WAL-MART

Marks & Spencer

Market Capitalization     $18 billion

Sales     $13.3 billion

% of Sales Overseas     16%

No. of Countries     34

Revenue     $14 billion

Return on Assets     13%

Return on Equity     18%

Current Ratio     0.98

Wal-Mart

$204 billion

$150.7 billion

17%

10

$144 billion

...