Marks & Spencer's PEST Analysis
What is PEST Analysis?
PEST analysis is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up from:
1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.
2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These are known as PEST factors.
Marks & Spencer's PEST Analysis
Global retailer Marks & Spencer is the United Kingdom’s premier clothing, food, and financial services retailer. The company’s commitment to value, service and quality began in 1884 when Michael Marks, a Russian born Polish refugee formed a partnership with Tom Spencer, a former cashier from the wholesale company IJ Dewhirst, which later on became Marks & Spencer. During this 120-year journey, Marks & Spencer has continuously evolved and is known as one of the biggest retailers in the world today.
Marks & Spencer moved in food business in 1931 and initiated financial services business in 1985 with their charge card. The group has around 68,000 employees and serves 15 million customers per week.
Marks & Spencer’s biggest tangible asset is its store portfolio which comprises over 600 stores worldwide, out of which 451 operate in the UK and 217 in 30 territories across the globe. Some of the stores that operate in the UK have been structured as “Simply Food” which caters to customer demand in convenient locations. In its international portfolio, Marks & Spencer has 8 wholly-owned stores in Hong Kong and 11 in Ireland. The remaining are franchised stores spread across Asia Pacific, Europe, Central Europe, Middle East, and Central Asia.
Marks & Spencer showed a significant improvement in its performance in the year 2006. The share price of M&S surged as compared to 2005. The strong growth in revenue is evidence of the strong and successful leadership of Stuart Rose. M&S faced problems in its clothing arena which have been overcome after a major overhaul and change in marketing techniques and store layouts. M&S is a financially strong company with a global presence and has a well-established market position. It faces a challenge from its rivals, however, the financial results of the year 2006 prove that M&S cannot be sidelined by its competitors since it has generated better returns for its shareholders. M&S has been through a radical change in its operations and has improved considerably. M&S has a 120-year old history and enjoys high brand recognition. M&S stock market indicators are strong and convincing of its continued growth. An investor considering investing in M&S stock should not hesitate since the company is fairly priced taking its P/E ratio into consideration. Furthermore, the beta of M&S shows that it is not a volatile stock and has the potential to withstand any stock market downturns.
Marks & Spencer Board comprises of the Chairman, Chief Executive, one executive director and four on-executive directors. Collectively, the Board is responsible for the success of the company. Through the Chief Executive, the Board delegates to management the overall performance of the company through the setting of clear objectives, building long-term management capability and ensuring that the business is managed in conformity with the business principles.
Marks & Spencer is into food, clothing, household items, and financial services business located in the UK with some wholly-owned and franchised operations worldwide. 49.9% of business in the UK is derived from food sales which accounts for 3.2% of market share1. Food sales were up 2.4% in 2005, however, in 2006 food sales were up by 7%. Marks & Spencer’s significant international presence contributed 9.1% to the Group’s pre-tax profits in 2006. Most of these profits were a result of strong food sales. Food comprises of a big chunk of M&S retail business.
Tesco, competitor of M&S, reported a net profit of £1.57 billion for the year 2006. Total sales enjoyed a surge of 31.9% at £1 billion. Non-food sales grew by 13%, clothing sales grew by 16% in a difficult market. Tesco Personal Finance reported an operating profit of £205 million, a growth of more than 50% over last year.
A buying academy was set up by M&S in 2005 to manage the buying department. This was to ensure a tight control over all aspects of buying. Weekly targets were set to control inventory levels at every part of the supply chain and to reduce inventory for products depicting falling demand. Regional sourcing directors were recruited to focus on a single approach to direct buying. Various measures were taken to improve the supply chain. For example, regional offices were established in Turkey and India to coordinate the supply function. Moreover, M&S also set up a stock planning function to coordinate budgets and reduce the risk of overbuying and under-stocking
To successfully operate, an organization needs awareness of the environmental influences and trends that encircle it. PEST analysis can achieve this objective and provide an overall picture of the variety of forces at work around an organization. PEST analysis measures a business’s market and potential according to external factors; Political, Economic, Social and Technological.
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers. It is imperative that an organization considers certain political issues before beginning the marketing process as the entire marketing strategy of the organization is dependent upon the prevailing political environment in the country. These issues are:
- How stable is the political environment?
- Will government policy influence laws that regulate or tax your business?
- What is the government’s policy on economy?
- Are there any threats to the existing government?
Marks & Spencer is based in the UK which has a stable political scenario and there are no serious threats to it. Terrorist attacks in July 2005 did raise concern over the political situation; however, due to tight security measures things have been under control since then. The current Labour administration, which is serving its third consecutive term, has generally proved to be efficient and effective.
The tax system in the United Kingdom is among the most attractive in the developed world with low corporate and personal taxes.
The United Kingdom has an open economy and ranks among the fourth largest in the world. Properly managed fiscal and monetary policies have produced an expanding economy in the country with low inflation and strong government finances.
Marks & Spencer needs to conduct a thorough economic analysis. It is vital to consider the state of economy in the short- and long-terms. Issues such as interest rates, inflation, GDP, employment levels, etc. need to be encompassed in the marketing plan so that the strategies adopted encounter all such issues and ensure sustainability of competitive position. Current economic situation in the UK is favourable with low-to-moderate interest rates which signal a healthy economy. A healthy economy is a sign of increasing disposable income which, in turn, is good for the business. Marks & Spencer needs to concentrate more in the fashion arena as younger generation spends most of their disposable incomes on clothing.
Social and cultural influences on business vary from country to country. Marks & Spencer has operations not only in UK but across 30 territories worldwide which places it a diverse socio-cultural arena. Marks & Spencer management needs to address social factors such as consumer’s tastes and preferences, attitudes to foreign products and services, the amount of time that consumers can dedicate for leisure, mortality rates, and aging of population1. Taking these factors into consideration will equip the organization to accordingly cater to the needs of the consumers.
Technology is vital for competitive advantage and is a major driver of globalization. In considering technological factors, issues to be considered are:
- Does technology allow cost-effective production of goods and services?
- Does the technology bring innovation in products and services?
- Has technology brought any change in the distribution of products and services?
Marks & Spencer’s competitors are more advanced in the use of technology. This can be substantiated by the fact that Marks & Spencer did not have a loyalty card or internet shopping option when other retailers had. This lag in technology can affect an organization’s competitive position; therefore, Marks & Spencer started using technology to increase its potential. For example, the use of Windows 2000 server was selected to provide secure and reliable internet platform, and REJTM analysis to identify business-critical success factors, and to create a value framework.
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Full explanation of this strategic model and framework, where and how it is used by strategy consultants. Includes links to more finance and corporate strategy tools.
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Introduction to the PEST analysis - Political, Economic, Social, and Technological factors...
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