Marks & Spencer (known as M&S) is a famous
British retail chain selling clothes, food, household
goods and furniture from over 450 shops in the UK
and some 200 managed under franchise in 30
territories mostly in Europe, the Middle East, Asia
and the Far East as well as wholly-owned stores in
the Republic of Ireland and Hong Kong. In 2007 it had a turnover of over £7 billion and employed over 70,000 people. M&S’s origins come from a chain of ‘penny bazaars’ (market stalls selling everything for one penny) set up in the late 1800s by a Russian-born Polish-Jewish immigrant, Michael Marks in Leeds with a £5 loan from Issac Dewhirst, a wholesaler. Interestingly Dewhirst went into manufacturing and remains the biggest supplier of M&S to this day. Marks’ opened his first store below his home in Manchester in 1893. He went into partnership with Thomas Spencer (then a Dewhirst cashier) and the first Marks and Spencer store was opened in the prestigious Cross Arcade in Leeds in1904. After the death of the founders, Simon Marks (son of Michael) took over as Chairman and started to work with his friend Israel Sieff. Together they turned M&S into the iconic British retailer it is today. The original success was based upon a number of ideas that meant M&S, although never cheapest in the market place, offered high quality but most important of all very good value for money. They did this by adopting the then revolutionary idea of buying directly from manufacturers and placing their own label on goods - originally the St Michael brand (registered in 1928). By the 1950s all goods were sold under this label. By then it was known for selling only British made goods, entering into long term partnerships with British manufacturers which required them to commit solely to manufacturing M&S products. It was also known for its policy of accepting the return of unwanted goods, giving a full cash refund if the receipt was shown. It’s first overseas store was opened in 1975 and it resisted the lure of television advertising until the mid 1990s.
But it was in the 1990s that M&S started to lose direction and, as can be seen from the financial highlights below, both turnover and profitability started to fall. With the benefit of hindsight, Sir Richard Greenbury’s tenure as Chairman (1991-1999) saw profit margins pushed to untenable levels, and the loyalty of customers was seriously eroded. A number of things happened. The costs of using British suppliers increased so M&S reduced quality. Meanwhile competitors were sourcing overseas and beating M&S on value for money. M&S’s reaction was to switch to overseas suppliers but this undermined a core part of the company’s philosophy and appeal. At the same time the company was losing touch with potential younger customers who increasingly saw M&S designs as frumpy and old fashioned. Alongside this the company steadfastly refused to accept credit cards except for their own store card. In the financial press M&S came to be seen as an aging and famously lethargic and bureaucratic company. They simply failed to see that the high street had changed and competitors were now offering better products at lower prices in more attractive surroundings. The slump took the company by surprise and its share price fell by over two thirds and the late 1990s saw serious boardroom instability. But how do you encourage a firm with over 100 years of history to reinvent itself and become, again, entrepreneurial? How do you drive through the necessary changes? Answer - you bring in new people....and you start at the top.
© 2008 Professor Pal Burns. Extract from: Corporate Entrepreneurship: Building the Entrepreneurial Organization (2nd Edition), Paul Burns, Palgrave Macmillan, 2008.