The country's most famous retailer Marks Spencer's big store in London's Kensington High

Street has just had re-fit. Instead of the usual drab M&S interior, it is now Californian shopping

mall meets modernist chrome and creamy marble floors. Roomy walkways and designer displays

have replaced dreary row after row of clothes racks. By the end of the year M&S will have 26

such stores around Britain the first visible sign that the company is making serious effort to pull

out of the nose-dive it has been in for the past two years.

Things have become so bad that M&S, until recently national icon, is in danger of becoming

national joke. It does not help that its advertisements featuring plump naked women on

mountains the first-ever TV ads the company has produced have met with an embarrassed titter;

nor that, last week, the BBC's Watchdog programme savaged M&S for overcharging and poor

quality in its range of garments for the fuller figure.

As the attacks grow in intensity, so do the doubts about M&S's ability to protect its core value:

reputation for better quality that justified slight price premium at least in basic items, such as

underwear. It is long time since any self-respecting teenager went willingly into an M&S store to

buy clothes. Now even parents have learned to say no. Shoppers in their thirties and forties used

to dress like their parents. Now many of them want to dress like their kids.

M&S's makeover comes not moment too soon. Compared with the jazzy store layouts of rivals

such as Gap or Hennes Mauritz, M&S shops look like hangover from bygone era. The makeover

aims to bring it into the present.

People tended to join M&S straight from college and work their way slowly up the ranks. Few

senior appointments were made from outside the company. This meant that the company rested

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on its laurels, harking back to 'innovations' such as machine-washable pullovers and chilled

food.

Worse, M&S missed out on the retailing revolution that began in the mid-1980s, when the likes

of Gap and Next shook up the industry with attractive displays and marketing gimmicks. Their

supply chains were overhauled to provide what customers were actually buying surprisingly

radical idea at the time.

M&S, by contrast, continued with an outdated business model. It clung to its 'Buy British' policy

and it based its buying decisions too rigidly on its own buyers' guesses about what ranges of

clothes would sell, rather than reacting quickly to results from the tills. Meanwhile, its

competitors were putting together global purchasing networks that were not only more

responsive, but were not locked into high costs linked to the strength of sterling. In clothing,

moreover, M&S faces problems that cannot be solved simply by improving its fashion

judgments. Research indicates that overall demand for clothing has at best stabilised and may be

set to decline. This is because changing demographics mean that an ever-higher share of

consumer spending is being done by the affluent over-45s. They are less inclined than youngsters

to spend high proportion of their disposable income on clothes.

The results of M&S's rigid management approach were not confined to clothes. The company

got an enormous boost 30 years ago when it spotted gap in the food market, and started selling

fancy convenience foods. Its success in this area capitalised on the fact that, compared with

clothes, food generates high revenues per square metre of floor space. While food takes up 15%

of the floor space in M&S's stores, it accounts for around 40% of sales. But the company

gradually lost its advantage as mainstream food chains copied its formula. M&S's share of the

British grocery market is under 3% and falling, compared with around 18% for its biggest

supermarket rival, Tesco.

M&S has been unable to respond to this competitive challenge. In fact, rather than leading the

way, it has been copying rivals' features byintroducing in-house bakeries, delicatessens and meat

counters. Food sales have been sluggish, and operating margins have fallen as result of the extra

space and staff needed for these services. Operating profits from food fell from 247m in 1997 to

137m in 1999, while sales stayed flat.

Perhaps the most egregious example of the company's insularity was the way it held out for

more than 20 years against the use of credit cards, launching its own store card instead. This was

the cornerstone of new financial-services division, also selling personal loans, insurance and

unit-trust investments. When, in April this year, M&S eventually bowed to the inevitable and

began accepting credit cards, it stumbled yet again. It had to give away around 3% of its

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revenues from card transactions to the card companies, but failed to generate big enough increase

in sales to offset this. Worse, it had to slash the interest rate on its own card, undermining the

core of its own finance business. And this at time when the credit-card business was already

becoming more competitive, with new entrants offering rates as low as 5%.

If shrunk to its profitable core, M&S may become an attractive target for another big retailer. At

the moment, however, while its food division may be attractive to the likes of Tesco, the clothing

side represents daunting challenge. Why take the risk now, when the brand may be damaged

beyond repair?

Questions

1. Identify the main factors affecting the demand for M&S products.

2. Analyze the weaknesses and threats on the demand side of M&S, relating these to

controllable and uncontrollable factors.

3. Discuss the type of strategy to be set by M&S to get rid of the weakness.