Certainly, retailers do not operate in a vacuum situation, since surviving in the retail sector is a constant struggle and requires constant change in strategy through trial and error to make profits and a name in the sector. Operating in a vacuum implies a situation where the retailer is protected from competition and is having the advantages of a loyal customer base that has the tendency to always visit the same retailer for their purchases of consumer goods. However, this is not so since retailing entails a perfect competition situation where it is a race for survival amidst cutthroat competition amongst all in the fray. In this context, the status of retailers in the UK is not in keeping with the huge size and immense success of those in other parts of the world.
There is in fact a race in the global arena and unless UK retailers show greater willingness and make more strategic changes in the way they work, they will soon find themselves left far behind while retailers from Europe and other countries take over dominating positions in the country. So there is no question of UK retailers enjoying any protection by way of tariffs or levies on outside retailers so as to protect them. As per available data, there is only one UK retailer that ranks among the top ten of European retailers.
Tesco, which is owned by Terry Leahy has been ranked seventh on the basis of its sales in Europe and is followed by others such as Marks & Spencer, and J Sainsbury within the UK. The world is now characterized by new markets in upcoming and third world countries, and as is the trend amongst the top retailers of the world, the only option to grow in the circumstances is to expand beyond boundaries and adopt strategic and proactive planning to make a mark in the retail markets of the world.
Ultimately for retail sales, there has to be a dependence on profits to incur only from high volumes and this is possible only by reaping the benefits of economies of scale and in this context, volumes are available only in the new economies where the huge customer base is waiting to be tapped. It is very much in context to say that the statement âretailers do not operate in a vacuum; they are in a competitive struggle for survival and growthâ is very valid in the retail sector in view of the immense competition and low margins.
In this context, we will examine the case of Marks & Spencer (M&S) which has in recent years experienced a downfall in the sales from its retail operations but is now well poised to stage a comeback in view of the proactive strategic actions planned by the management. This in itself is a clear indication that retailers cannot work in isolation or in vacuum situations due to the ever-increasing expectation of consumers who want the best in terms of value for their money. The competition is further increased by a consistent introduction of innovative products in the market by competitors to woo customers in an attempt to command a larger chunk of the market share.
Retailing for M&S is not new and they realize that there is a need for them to constantly introduce new formats and products and give consumers more utility from their services. The shopping experience has to be made more pleasant as shoppers look up to retail chains as a solution to the dreary systems in high street shopping of earlier days where shopping was a core to be performed to buy products. But now shopping implies a pleasant experience whereby there are a variety of products to choose from in contrast to the limited varieties available in high street shopping or in the local grocery stores.
It is indeed a struggle for survival and growth in the competitive environment in the retail sector. In the context of the competition and to give a boost to its brand image Marks & Spencer plans to first concentrate its efforts on consolidating its functions within the UK. This is envisaged by making a mission to sell its own brands from its stores rather than those of other companies because for M&S there is no extra incentive in selling such products nor does the consumer get extra value by buying them from Marks & Spencer. To make this possible, the company will strengthen its supply chain, which is traditionally considered a prime strength of Marks & Spencer.
The core competency of the company has been its ability to establish a winning strategy for itself as also for the supplier. The company has realized that returning to this kind of arrangement will bring back the old days of glory whereby customers will be provided with the value that they seek for the products. The company has decided to operate in only those sectors where the scale, authority and confidence for its products are present in the various segments. Marks and Spencer plan to refurbish its image so that all products in its store will exhibit enhanced quality, innovation and value for which Marks & Spencer is known for.
The company has realized that the definition of quality has now changed. Previously good clothes were those that could last for years, but now it implies that customers want the same durability as also want other criteria such as fit and style. Sure customer is king, and Marks & Spencer has to adopt a policy in pleasing customers, otherwise, they will seek the same from other retailers. In performing these functions the company will also transform its store formats into more attractive ones so that shopping becomes a more pleasant experience. The competition is in every area of retail and the company will concentrate on strengthening and consolidating products that are in its chosen categories and are fast-growing such as ready meals and prepared foods. The company has to ensure that its products will provide the value, quality and innovations, which characterize Marks & Spencer as a unique retailer in the country
It is in the best interest of Marks & Spencer to stop supporting non-core activities and subsidizing businesses that are loss-making. The competition in retail is a perfect competition situation where profits can come only from large volumes, and it is imperative that flab is done away with to avoid unproductive activities. Itâs Brooks Brothers and Kings Super Markets are not doing good business in the US and hence are being closed, which is indeed a proactive measure in furthering the business interests of the company.
Direct clothing catalog operations of Marks & Spencers, which too are non-performing are being discontinued in keeping with cost-saving measures. The company proposes to change its strategy of running subsidiary stores in Continental Europe and may soon close them for austerity measures due to its European functions not proving to be a success. The retail chain has lost over a hundred million pounds in the last three years in Europe, which is a clear indicator for the strategy to be changed. Notably, this is due to the store formats of Marks & Spencer being extra large in comparison to customer aspirations and it is high time the company accepted all that has gone wrong and take remedial measures to stem the further occurrence of losses.
The business is currently not sustainable and requires restructuring in the interest of employees and shareholders that number about 60000 and 400000 respectively. There is no alternative for the company but to concentrate and focus now on those businesses only that are viable in terms of customer expectations. This process will commence with the closing down of all loss-making businesses of M&S (M&S Strategy).
Another element for bringing in remedial measures in the face of increasing competition is to change the capital structure so as to bring a better return on investment for stakeholders and shareholders. So far M&S investors have not had a good return on their equity, and the company is devising means to securitize company-owned properties since the return on them has not been good over the years. Once the money is realized, the company can use it to invest in areas that give good returns.
In following such a strategy it does not mean that the company should sell or close its stores, because the customer is not concerned whether the stores are rented or company-owned. In this regard, the company has made a decision to hand back two billion pounds to investors in a phased manner so as to improve its credibility, which will result in more mobilization of financial resources in the future. With these measures in the pipeline, there is a renewed vigor and momentum in the strategy to move towards constructive action and in the coming time, there will be a significant change in the way customers see M&S products and stores.
To start with M&S has strategic plans to tackle the biggest challenges faced by mankind today in terms of climate change, waste reduction, safeguarding natural resources and adopting ethical trade practices to contribute to building a healthy competition and a healthier nation (Bonnie Alter Jan 2007). This is to be achieved by way of the company becoming carbon neutral, sending no waste to landfills, extending and encouraging sustainable sourcing and helping in improving the lives of people in the company supply chain. Added to these is the objective of the company is to help customers and employees to live a healthier lifestyle.
As of January 2008, there was an 18% fall in the share price of the company, but it plans to continue with such objectives in view of compelling commercial and moral reasons, which it believes will eventually bring landslide gains emanating from its stability and concern for several other factors such as environment, employee concern and ultimate objective of providing value to the customer (BBC Dec 2007). In keeping with current retail strategies, M&S is not lagging in providing customers with incentives and purchase rewards, which is a strategy being used by all retailers to keep pace with the competition (Western Mail Nov 2008).
The company continues to change its marketing strategies and store formats in keeping with customer expectations and aspirations. Marks & Spencer’s objective is to provide high-end products that include womenâs wear under different brand names, menâs wear also under different brand names as also a host of technology products (Lionel Laurent, 2008).
In the context of the functioning of Marks & Spencer, and in view of the need for the company to expand into more global operations, an analysis of Porterâs Five Forces is very relevant in formulating such expansion strategies. We will examine Porterâs Five Forces in the context of rivalry, the threat of substitutes, buyer power, supplier power and barriers to entry because these factors have a strong bearing on the success of new retail ventures.
Marks & Spencer is already having its stores in 39 countries in different formats. Its main competitors are Metro, Carrefour, Tesco, Esselunga, Asda, Dixons, Safeway, Promotes and Boots, and all are each otherâs rivals in the international race to provide better shopping experience, better products and maximum value to customers. For every retailer, differentiation is considered to be the key factor in winning over customers. It is this rivalry that must be tackled by M&S in making a difference to the customer.
The consumer is king and has the option to substitute his choice of retail destinations in view of the several options available in different formats. The threat of substitutes does loom large over every retailer and they have to constantly be alive to the vagaries of such consumer behavior. It is in this context that M&S has already decided to improve its retail formats to give customers a better shopping experience since most goods are homogeneous and the only difference would be the experience of shopping.
Retailers must realize the power of the customer in framing the success and failures of retail formats in view of their propensity to alter purchase decisions on the basis of factors such as demographic and lifestyle situations prevailing at the given locations. M&S is formulating a strategy to cater to the aspirations of each segment of customers on the basis of age, location and eating habits of people. Different locations warrant different retail formats and varying shopping experiences depending on the culture and lifestyle of the people and the target customers. M&S has also taken a decision to market its own products from its stores so that the customer does not have a choice in going for another substitute elsewhere. This way M&S can have more power over buyers.
The fourth of Porterâs five forces is the importance of supplier power but in the case of retailers the power does not lie in the hands of suppliers in view of the convenience with which retailers can change suppliers whenever required due to cost or quality issues. There is now an established pattern for retailers and suppliers to collaborate with each other in having long-term supply arrangements at very competitive prices that prove to be much cheaper for retailers in sourcing for their customer needs. M&S is having elaborate tie-ups with leading consumer and apparel brands in addition to its own brands for men, women and children’s wear.
M&S has an already well-established brand image for several of its range of apparel for women, men and children which acts as a barrier to entry for other retailers in view of the customer loyalty it entails for the company. However, the company has to break other barriers that are present by way of being the strengths of other retail brands such as Carrefour, Metro, Tesco, Auchan and Kingfisher, which account for over 50% of purchases made from retail formats. A major barrier to entry in retail is due to the economies of scale that the established retailers enjoy by way of their brand value and discounts on bulk supplies from their regular suppliers. For a new entrant, it becomes difficult in purchasing supplies at reasonable rates and cannot compete due to the low margins in this business. M&S has a well-integrated supply chain that is professionally managed in sourcing its supplies.
In the light of the statement that âRetailers do not operate in a vacuum; they are in a competitive struggle for survival and growthâ, all that M&S is doing does in fact amount to very hectic efforts in staying afloat in the struggle for survival and growth in the competitive environment of retail operations. M&S is a very well-established company operating in retail for several years but has to constantly be alert to the need to change and innovate in keeping with market and customer expectations. It is very evident that, retailers do not operate in a vacuum and that they are in a constant struggle for survival.
References
Bonnie Alter, Marks & Spencer Gets Greener, 2007. Business and Politics.
Lionel Laurent, Marks and Spencer Reaps Dividends. Web.
Marks & Spencer chief fends off critics at the shareholder meeting, International Herald Tribune, 2008.
Marks and Spencer loses its spark. 2008. Western Mail.
Marks and Spencer’s Rose Honoured. Web.
Marks and Spencer sees sales drop. 2008. BBC News.
Marks & Spencer Strategy Insight. Web.