Marks & Spencer (B)
The case study continues the story of Marks & Spencer, the previously successful British retailer which had run into a series of strategic and financial problems in the late 1990s and early 2000s. This case examines the attempts of two CEOs, Roger Holmes and Stuart Rose, to turn around the company’s fortunes with very different approaches.
Michael Marks began one of the world’s most recognised brands by establishing a penny bazaar in 1884. The phenomenal success of the business led Marks to seek a partner; he chose Tom Spencer. From this partnership Marks & Spencer (M&S) steadily grew, but by the early twenty-first century its success was running out.
Hitch in the formula1
Until the late 1990s M&S was highly successful in terms of profit and market share. This was achieved by applying a fundamental formula to its operations, which included: simple pricing structures, offering customers high-quality, attractive merchandise under the brand name ‘St Michael’, working with suppliers to ensure quality control, and providing a friendly, helpful service. This was enhanced by a close-knit family atmosphere in the stores, which was compounded by employing staff whom M&S believed would ‘fit in’.
Throughout most of the 1900s M&S was led by family members, who favoured close control and meticulous attention to detail. Central edict was given for purchasing, merchandising, layout, etc., hence every M&S was identical, resulting in a consistent image and guarantee of standards. M&S stocked generic ‘essential’ clothing, and priced its products at a ‘reasonable’ level, while emphasising their high quality, a claim based on its insistence of using British suppliers. M&S’s problems crescendoed in 1998 when it halted its European expansion programme, announced a 23 per cent decline in profits, and suffered decreasing customer satisfaction. Richard Greenbury (CEO) blamed this on a loss of market share to ‘top-end’ competitors such as Oasis, which offered more fashionable, but similarly priced goods, and at the bottom-end with competition from discount stores and supermarkets, which offered essential clothing, but at lower prices. Analysts felt M&S no longer understood its customers’ needs, was preoccupied with its traditional risk-averse formula thus ignoring changes in the marketplace, focused on day-to-day operations rather than long-term strategy, and had an inward-looking culture, as executives were promoted internally, after immersion in M&S’s routines and traditions. To counter these problems successive CEOs implemented many strategies, including refurbishments, store acquisitions, restructuring, new ranges, overseas sourcing, European expansion followed by complete withdrawal, diversification into homeware, and moving from the corporate headquarters. However, these measures made little impact, and profits warnings and falling share prices (2503/4p at its lowest) followed.
For full details of M&S’s success and problems throughout the 1990s to 2004 refer to Marks & Spencer (A).
This case was prepared by Nardine Collier, Cranfield School of Management. It is intended as a basis of class discussion and not as an illustration of good or bad practice. © N. Collier 2007. Not to be reproduced or quoted without permission. Marks & Spencer (A) case is held in the Classic Cases collection on the website and is accessible for reference.
by Johnson, Whittington & Scholes
Exploring Strategy Classic Case Studies
In 2001 Luc Vandevelde (CEO) head-hunted Roger Holmes, aged 40, to be Head of UK retailing. Holmes started his career as a consultant for McKinsey, moving to Financial Director of DIY chain B&Q, Managing Director of retailers Woolworths, and finally Chief of Electricals for the Kingfisher group. At M&S he began by implementing a store refurbishment, creating ‘shops within shops’, to show customers how different styles worked...
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