MARKS & SPENCER IN CHINA

In $2008,$ Marks and Spencer $($M&S$)$ announced its entry into China. The iconic high$-$street British retailer wanted to tap growth in emerging markets. China fit the requirements: a rapidly growing middle class with increasing disposable income and a preference for Western brands. The company opened a company$-$owned store on the busiest and most expensive street in Shanghai: West Nanjing Road. M&S$\text{'}$s decision to enter China's retail market without a local partner reflected management's concerns to retain full control over operations rather than share decision making, a strategy that differed from many Westem retail competitors. However, the company struggled: most stores broke even at best, and M&S lacked brand awareness. By late $2016,$ management faced a stark

choice: continue to operate at a loss or leave the country.

Retail Partnerships in China

Foreign retailers in China chose a local partner for various reasons. The earliest retail entrants $($pre$-$chose the joint venture $($JV$)$ structure out of legal necessity: pre$-$World Trade Organization $($WTO$)$ accession China required foreign retailers to partner with a local JV firm for market access. For example, in $1996,$ Walmart entered China with state$-$owned CITIC, opening the first Walmart Super Center and Sam's Club in Shenzhen. Some later retail entrants, however, envisioned benefits associated with local partners. Tesco, one of M&S$\text{'}$s UK competitors, initially entered China alone and later entered into a JV with Chinese Resources in $2014$ to help turn around the business. The partnership helped Tesco establish a more localized and robust regional presence. M&S$,$ however, entered China's retail market alone. This decision was partially due to the scars of the first $($failed$)$ wave of international expansion, but was also part of a larger branding strategy. The company viewed the M&S brand as a key advantage in the Chinese market; any factor that diluted it was to be avoided. Thus, M&S exported its UK retail model wholesale to China, albeit with some input from Hong Kong franchisees.

Operational Problems and Lack of Strategic Clarity The store's first operational year was marred by a raft of preventable problems. Grocery, one of the

store's largest revenue categories, suffered from foutine shortages due to supply chain failures. M&S$\text{'}$s food operations in the UK not only depended on sourcing from a range of organic farmers, but also had intricate logistical handoffs that were not established in China. The company also wrongly assumed that what worked for consumers in Hong Kong would work for consumers in Shanghai. For example, it based decisions for product sizes on existing consumers' preferences in Hong Kong; in Shanghai, clothing in smaller sizes sold out much more quickly than larger sizes, leaving many customers empty handed. Finally, the M&S CEO's conception of the company's target consumer group likely differed from the ideal. CEO Stuart Rose identified the store's target store, however, seemingly failed to target this group; it also failed to establish its value proposition at

the start, and adjustments thereafter were equally unsuccessful. Even with an admittedly rough start, M&S expanded its presence in China. It added a second and third store in Shanghai in $2010.$ As M&S added to its brick and mortar presence, however, the tectonic plates of the retail industry were rapidly shifting under it$.$

China$$s Rapidly Changing Retail Environment

When M&S entered China in $2008,$ China$$s retail sector was posting double$-$digit annual growth rates. As Exhibit $3$ illustrates, the CAGR of the retail sector was $12\mathrm{.}5\%$ from $2008$ to $2016.$ In the midst of this rapid growth, the sector was being transformed by two factors: the rapidly shifting retail landscape and the rise of e$-$commerce.

An Increasingly Localized Grocery Market

Although M&S was a multi$-$category retailer, the stores in China primarily comprised two categories: grocery and clothing. M&S$$s grocery products, from chips and tea to warm rolls, were imported from the UK$.$ Other multinational grocery retailers with a major presence in China, however, were pursuing a localization strategy and offered an increasing selection of groceries sourced domestically. M&S$$s unique and pricey offerings allowed it to establish a luxury niche in the growing grocery market. Looking at China$$s fast$-$moving consumer goods $($FMCG$)$ space in $20122013,$ Chinese ceompetitors already dominated. Looking at Exhibit$4,7$ of the top $10$ enterprises by sales were chinese many with a comprehensive national presence. Walmart and carrefourin the top $10$ had effectively localized to the point where many product lines were indistinguishable from those of local retailers. Tesco, a direct competitor to M&S$,$ ranked $11$th overall in sales. Even Tesco, however, pursued a hybird strategy: It maintained a supply of UK$-$imported goods $\backslash ,$ along with local product offerings. M&S$,$however, did not plan to localize its grocery business. The company expanded further in China. By $2012,$ M&S had eight stores in eastern China and vowed to double that in one year. Although food sales were a bright spot in comparaison to clothing, it appealed to a limited demographic group in tier$-$one cities, and even then, its products were not commonly among customers.

Your company SuperConsulting ltd is appointed to advise M&S on its strategy in China $.$You are asked to come up with a consultancy report, which will comprise of:

$1)$ An analysis of the problems faced by M&S in China using appropriate consultancy tools.

$2)$ List of alternative solutions and justification of your best proposed solution.

$3)$ An implementation plan including WBS $($with total estimated time$),$ cost$-$benefit analysis, RACI plan, risk assessment, and Critical Success factors $($CSFs$)$ of your proposed solution.