MARKS & SPENCER PLC1

In 1985, Britain's best-known retailer was the subject of a gusher of a book: Marks & Spencer: Anatomy of Britain's Most Efficiently Managed Company. Nowadays, any book on the 115-year-old food and clothing chain would need a new title. Comedy of Errors is more like it.
Businessweek – 18.10.99

Introduction

Marks & Spencer Plc (from now on M&S) is an international retailer with 718 locations across 34 countries. The group sells clothing, footwear, gifts, home furnishings and foods under the St. Michael trademark in its chain of 294 stores in the United Kingdom. Approximately half of the group's overseas stores are franchised to local partners. The group also owns the clothing retailer Brooks Brothers and the Kings Super Markets chain in the United States of America. Direct mail helps M&S meet the core objective of providing customers with wider, easier access to their products such as home furnishings, flowers, hampers and wine. The financial services comprise of operations of the groups financial services companies providing account cards, personal loans, unit trust management, life assurance and pensions. Retailing accounted for 96% of fiscal 2000 revenues and financial services, 4%.
The company was always considered to have a great management support that helped in its growth. But the last years, M&S’s managers seem to fail on their strategic decisions, leading the group to lower and lower sales and profits. The share price is also dropping and shareholders feel insecure for the future (figure 2). Group structure and financial performance

The group’s performance measures for the year ended at 31 March were disappointing (figure-5). The return on equity ratio and the earnings per share were zero as the company had only £1.3m profit this year. For the same reason, the dividend cover was also zero. Last year the dividend cover was 1,0p as the company paid the shareholders all its profit. For doing so the company had to cut the dividend from 14,4p to 9,0p. This year the company proposed the same dividend even though it had almost no profit.
The group reports the results of three operating divisions: the UK Retail, the International Retail and the Financial Services.

UK Retail division

The UK Retail division, the largest of the operating divisions, is itself sub-divided into seven business units, each representing a defined area of merchandise: Womenswear, Menswear, Lingerie, Childrenswear, Beauty, Home and Foods. The first six business units are reported as “General”, and footage is allocated between them depending on demand and seasonal factors. The space allocated to the largest single business unit, Foods, is relatively inflexible.
Financial results in the UK Retail showed a fall in both sales and operating profit. The reduction of the average selling price of general merchandise by approximately 2.5% coupled with a decline of some 1.5% in the number of units sold, contributed to the overall fall in general sales.

FIGURE-1: Sales and operating profit per area (year ended 31 March)

Sales Operating profit2­­­­­­­­ ­­

2001
2000
2001
2000

£m
£m
£m
£m

Group Total
8075.7
8195.5
467.0
543.0

UK Retail
6293.9
6482.7
334.8
420.1

International Retail

Europe

Continental Europe
285.0
294.3
(34.0)
(33.5)

Ireland & European franchise businesses
263.3
261.3
22.6
18.7

North America

Brooks Brothers
448.1
395.5
20.2
7.9

Kings Super Markets
313.1
273.7
11.9
11.1

Far East
110.1
101.2
7.4
(4.8)

Financial Services
363.1
364.6
96.3
115.9

International Retail division

The International Retail business consists of three broad geographic areas: Europe (including Ireland but excluding the UK), North America and the Far East. The International Retail results