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INTRODUCTION
Marks & Spencer (M & S) is a British retailer, with 760 stores in more than 30 countries around the world. It is one of the most iconic and widely recognized chain stores in the United Kingdom (UK) with 520 stores and is the largest clothing retailer in the country as well as being a multi-billion pound food retailer. Most of its shops sell both of these categories. It has recently started home wares such as bed linen.
All international stores of Marks and Spencer are operated under franchise with exception of the stores in the Republic of Ireland and Hong Kong. The first M&S store in central Asia was built in Kabul, Afghanistan in the 1960’s. The store was later shut down.
Expansion into France began with stores opening in Paris at Boulevard Haussmann and Lyon in 1975, followed by a second Paris store at Rosny 2 in 1977. Further expansion into other French and Belgian cities followed into 1980’s. Although the Paris store remained popular and profitable, the whole of the Western European Operation did not fare as well and all the stores were closed in 2001. Branches just remained in some European countries, such as the Czech Republic and Malta.
Retail internationalization has attracted much attention in recent years as the scale and nature of the activity has changed. Most analysis of retail internationalization however is based on market entry and mainly successful businesses. Here, the internationalization strategy of Marks and Spencer over 30 years is examined. Its recent large-scale withdrawal from such activity is considered in the light of theories about internationalization and business failure. The complexity of market exit in retailing is emphasized. It is suggested that market exit and failure are important under researched dimensions of retail internationalization.
On 1987, the President of Marks and Spencer, Ltd, J. Edward Sieff is thinking how to make M&S become much more dominant in the retailer industries. He intend to do market expand to US market like his majority staff input during their meeting.
However, Sieff has his own perspective for it. He still remembers their experience in Canada market. They lost money and the last 38 stores in Canada were closed in 1999 after 10 years disaster for the first fourteen years of their operation even though In 1970’s Marks and Spencer has good experience in Canada market compare with other M&S markets by using D’Allaird’s Peoples and M&S brand names.
COMPANY PROFILE
Marks and Spencer, known colloquially as M&S or “M and S” made its reputation in the 20th century on a policy of only selling British-made goods. It entered into long term relationships with British manufacturers and sold clothes and food under the ‘St Michael” brand (trade mark registered in 1928). IT also accepted the return of unwanted items, giving a fully cash refund if the receipt was shown, no matter how long ago the product was purchased. It has now adopted a 90 – day returns policy.
By 1950, all goods were sold under the St Michael label. Simon Mark died in 1964, after 56 years service to the company. Israel Sieff took over as Chairman. A cautious international expansion began with the introduction of Asian Food in 1974. M&S opened stores in continental Europe in 1975 and in Ireland four years later.
The Company put its main emphasis on quality but for most of its history, it also had a reputation for offering fair value for money. When this reputation began to waver, it encountered serious difficulties. Arguably, M&S has historically been an iconic retailer of “British Quality Goods”. Its business model required suppliers to commit to long term contracts solely with M&S. This approach often led to over – reliance by manufacturers on the portion of trade they did with M&S. Accordingly, when the M&S fashion buyers changed suppliers on some aspects of the company’s retail clothing offering, manufacturers were left dangerously exposed : many became insolvent. This has resulted in a change of climate and no longer is a contract to supply M&S held up the panacea it once was.
In 1988 the company acquired Brooks Brothers, an American clothing company and Kings Super Markets, a US food chain. Both were subsequently sold off in 2001 and 2006 respectively.
M&S profits peaked in financial year 1997/1998. At the time it was seen as a continuing success story but with hindsight it is considered that during Sir Richard Greenbury’s tenure as head of the company, profit margins were pushed to untenable levels and the loyalty of its customers was seriously eroded. The rising cost of using British suppliers was also a burden, as rival retailers increasingly imported their good from low-cost countries, but M&S’s belated switch to overseas suppliers undermined a core part of its appeal to the public. Another factor was the company’s refusal to accept any credit cards except its own store card. In addition, as an ageing and famously bureaucratic company, it was losing touch with potential younger customers, who were reluctant to shop with it.
Since the late 1990s M&S has experienced serious boardroom instability and has made a number of attempts to revive its business, with only partial success. By 1999, online shopping was brought in and the company grew with new sales of fashion clothing. In 2001, with changes in its business focus such as the introduction of the “Per Una” clothing range designed by George Davies, accompanied by a redesign of its underlying business model, profits recovered somewhat and M&S recovered some of its market share, but it soon became apparent that problems remained. Other changes to tradition included accepting credit cards and opening stores on Sunday.
US MARKET CONDITION
A. TRADE POLICY IN US PERSPECTIVE
All countries have international trade and investment policies. The importance and visibility of these policies have grown dramatically as international trade and investment flows have become more relevant to the well being of most nations. Given the growing links among nations, it will be increasingly difficult to consider domestic policy without looking at international repercussions.
International trade and investment policy can take either a multilateral or bilateral approach. Bilateral negotiations are carried out mainly between two nations while multilateral negotiations are carried out among a number of nations. The approach can also be broad, covering a wide variety of products, services or investments.
Too often the public mistakenly expected successful trade negotiations to affect the domestic economy in a major way, even though the issue addressed to resolve was only of minor economic importance. In light of global change, US trade policy does need to change. Rather than treating trade policy as a strictly “foreign” phenomenon, it must be recognized that it is mainly domestic economic performance that determines global competitiveness. Therefore, trade policy must become more domestically oriented at the same time that domestic policy must become more international in vision.
Such a new approach should pursue at least five key goals. First, the nation must improve the quality and amount of information government and business share to facilitate competitiveness. Second, policy must encourage collaboration among companies in such areas as goods and process technologies. Third, US industry collectively must overcome its export reluctance and its short-term financial orientation. Forth the United State must invest in its people, providing education and training suited to the competitive challenges of the twenty first century. Finally the executive branch must be given authority by congress to negotiate international agreements with reasonable certainly that the negotiation outcome will not be subject to minute amendments.
It will also be necessary to achieve a new perspective on government – business relations. However closer government – business collaboration is seen as one key to enhanced competitiveness. More mutual listening to each other and joint consideration of the long-term domestic and international repercussions of policy actions and business strategy can indeed pay off.
B. NAFTA
The concept of regional integration was used more than 100 years ago when Germany developed the Zollverein. Similar market agreements have been formed by other groups of nations. One of them is North American Free Trade Agreement (NAFTA), the Mercosur in Latin America and the Gulf Cooperation Council (GCC). These unions were formed for different reasons and operate with different degrees of cohesiveness as appropriate for the specific environment. They focus on issues as forming a custom union, a common market, an economic union, or a political union.
C. CULTURAL ENVIRONMENT
Culture is defined as integrated system of learned behavior patterns that are distinguishing characteristics of the members of any given society. It includes everything that a group thinks, says, does and makes – its customs, language, material artifacts and shared system of attitudes and feelings.
Culture is also multidimensional, consisting for a number of common elements that are independent. Understanding culture is critical not only in terms of getting strategies right but also for ensuring that implementation by local operation is effective.
United States highly regards individualism, promotional appeals should be relevant to the individual. Also in order to incorporate the lower power distance within the market, copy should be friendly. In opposite situations, marketing communications has to emphasize that the new product is socially accepted. While negotiating in United Kingdom, one can expect a counterpart who is thorough, systematic, very well prepared but also rather dogmatic and therefore lacking in flexibility and compromise. Great emphasis is placed on efficiency.
D. BRANDING
Brand names convey the image of the product or service. The term brand refers to the name, term, symbol, sign or design used by a firm to differentiate its offerings from those of its competitors.
The US market has a number of options in choosing a branding strategy. They may choose to be a contract manufacturer to a distributor or to establish national, regional or worldwide brands. For US Market, We (for example M&S) standardization of product and brand do not necessarily move hand in hand. A regional brand may well have local features or a highly standardized product may have local brand names.
ANALYSIS
Marks and Spencer failed in the Canadian and US markets due to a number of inter-connecting reasons. First, the fundamental differences between the US and the UK consumer requirements. The positioning in the UK market was replicated in Canada and US, but in a very different competitive environment. The position was not seen as distinctive nor unique and the brand lacked meaning. Certainly, its merchandise did not warrant its premium price. The business model did not transfer; it means there was no overall internationalization strategy. There were global ambitions for the business, as evidenced in the ‘quality, value, service, worldwide’ promotional line of mid 1990s but no real commitment to converting these ambitions into something concrete.
Second, the multi-dimension approach to store internationalization does not appear to be that coherent. There was no direction in the US purchase and no synergy. The franchise operations were a mix of the small, colonial, developing markets and random other countries.
Third, Marks and Spencer have always held to belief in their way of doing things above all else. For example the well known ‘Buy British’ policy, the lack of advertising and marketing, a refusal to take credit cards and a long time resistance to out of town developments all marked the company out as different. Also its product sourcing that was heavily based in the UK. All these factors greatly influenced its pricing strategy. The emphasis on a British product alone and lack of clear retail positioning and design, all presented problem in a global situation especially in the highly competitive US market.
A. STRATEGY
“Our experience illustrates that to succeed internationally when entering mature markets, you must adapt your store formats to the competitive realities of these markets.” (M&S annual report 2001)
The British people grew up with Marks and Spencer just like the Americans growing up with Levi’s and Nike. Marks and Spencer is an icon in the British retail business. However Marks and Spencer should realize that the American are not as passionate with the Marks and Spencer brand compared with the British. As such Marks and Spencer should tailor their products towards the American taste instead of trying to convince the American to “buy British products”. Marks and Spencer should therefore “un-British” their products for the US market. The US has a “younger population” compared to the Britain. This resulted in differences in consumer taste as a “younger population” is more dynamic, flexible and simple compared to the “older population” who are more sophisticated and inflexible.
To avoid losing touch with the potential younger customers who forms the biggest market segment in the US, Marks and Spencer should change the tradition of refusing to accept credit cards except its own store card. The younger Americans are very much in favour of using credit cards for their purchases. Also the opening days of the store has to be extended. Marks and Spencer have to consider opening their stores on Sundays to provide more convenience to its customers. Normally working people in dynamic countries like the US, do most of their shopping during weekends.
Before their product sourcing was mainly based in the UK. Now to take advantage of the tax benefits under NAFTA (North American Free Trade Agreement), Marks and Spencer should consider outsourcing their products to neighboring countries like Mexico and Canada. It also makes economic sense in terms of logistic.
B. BUSINESS FORMAT
Marks and Spencer should consider tying up with an established American retailer like JCPenney or Macy’s to break into the US market. It should not go into acquisition as it did previously with Brooks Brothers and Kings Supermarkets. These two acquisitions did not perform up to its expectations and were eventually disposed of.
Marks and Spencer should tap into its local partner’s knowledge and expertise in the US market in order to develop and gain a foothold in the US market. Marks and Spencer should realize that their product and brand name are not well-known in the US market. In order to establish the M&S brand in the US market, they need the other company which has experience, knowledge and survival in the US market. The company must be well-known in the US, has good networking and understands the local habits of US consumers. While we understand so far Marks and Spencer’s products are more segmented for the older people, working people who are more sophisticated and conservative.
C. BRAND AND PRODUCT
Since 2001 Marks and Spencer has a new variant female clothing product which was launched on September 2001. This product is “Per Una” which is a joint- venture between Marks and Spencer and the Next founder George Davies. The brand name means for “one woman” in Italian. This product has been a major success for the company.
For the US market, Marks and Spencer may use the same strategy, that is, to make a new product range which is geared more towards the American taste. Therefore Marks and Spencer may hire a well-known icon designer for younger Americans, with the brand name that’s easier and reflective of the American character, that is, young, dynamic, simple but trendy. They may also use a new name or using the designer name for the new product name or brand, following “… from Your M & S”
The other option takes into account the current trend among male and female celebrities who produce their own brand of clothes, EDP, jewelry, shoes, hand bags, etc. For example, Paris Hilton, Kate Moss, JLo, etc. It will be a good advertisement and image if Marks and Spencer also tie up with a celebrity and using his or her name to produce a limited edition range of products.
However, I suggest that Marks and Spencer’s original products also are made available in every store even in small quantities. It is important for Marks and Spenser to reach out to all Americans.
D. COMPETITION
As we understand that Marks and Spencer hardly place much emphasis on advertisements in the UK. It’s because almost every British people understand about M&S brand. However a strong business model is needed for Marks and Spencer to succeed in the highly competitive US market. More emphasis should be placed on advertising and marketing to create the awareness among the American public about Marks and Spencer products. That Marks and Spencer or M&S is not only about ‘British product’ but also means quality, style but simple and dynamic.
Marks and Spencer may use David Beckham as their icon model. It is because David Beckham’s original nationality is British and he is currently based in Los Angeles. Also he is famous not only among younger generation but also among the mature generation.
E. CULTURE COMPARISON
Culture is also multi-dimensional, consisting of a number of common elements that are independent. Understanding culture is critical not only in terms of getting strategies right but also for ensuring that implementation by local operation is effective.
British culture and US culture is different, it will influence in the way they act, behave and making decisions, also their taste for clothes, etc. Americans are more individualistic, as such promotional appeals should be relevant to the individual. Also in order to incorporate the lower power distance within the market, copy should be friendly. In opposite situations, marketing communications has to emphasize that the new product is socially accepted. While negotiating in UK, one can expect a counterpart who is thorough, systematic, very well prepared but also rather dogmatic and therefore lacking in flexibility and compromise. Great emphasis is placed on efficiency.
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