The Recovery of Marks & Spencer

Grete Birtwistle, Glasgow Caledonian University

Abstract
For decades Marks & Spencer (M&S) was the most successful retailer in the world. Its
clothes were affordable, the quality was excellent and its food department created the first
range of high quality ready-made meals. The City loved it, staff enjoyed the best benefits on
the high street and the company was highly profitable. In 1998, it was the first UK retailer to
make more than 1 billion in profit, but in the following year it all went wrong. The media
went to town, customers voted with their feet and the shares plunged. This case study sets out
to examine how Marks & Spencer recovered its position with consumers, the media and the
City.

Introduction
In 1882, Michael Marks established the firm that was to become a household name in the UK
by borrowing 5 from Isaac Dewhirst. He used the money to purchase goods from the
Dewhirst warehouse and pedalled them around Yorkshire villages. Two years later he had
market stalls in Leeds and the surrounding areas. Purchasing regularly from Dewhirst he met
with one of their cashiers, Tom Spencer, and the rest is history. In 1998, when Richard
Greenbury was the Chairman and Chief Executive, profit before tax for the year ending
March was 1.2bn; almost double the 640m profit made six years previously in 1992 with
return on sales being increased to 14 per cent (Bevan, 2002). However, customers were
beginning to find the M&S offer tired, providing poor value, with boring fashion styles and
sales began to decline. In April 1999, Kate Rankine wrote in the Telegraph Saturday
magazine the most damaging article ever written about M&S stating that the clothes looked
drab and dowdy while the shop assistants, if you could find one, were often rude and
unhelpful (Bevan, 2002). This opened the floodgates of negative publicity and the share price
plummeted. The directors, Peter Salesbury, Luc Vandevelde and Roger Holmes, all
commenced various recovery projects and brought in consultants but any upturn was short
lived (Table 1) (Rankine, 2003).
Table 1: Profit and Loss from 1998 to 2004
Year ending
31st March

1998
m
52
weeks
8,243.3
1,103.7
14.3
406.8

1999
m
52
weeks
8,224.0
512.0
14.4
(41.2)

2000
m
53
weeks
8,195.5
471.0
9.0
17.9

2001
m
52
weeks
8,075.7
440.5
9.0
(263.8)

2002
m
52 weeks

Turnover
8,135.4
Operating profit
590.5
Dividends
9.5
Retained
(85.9)
Profit/(Loss) for
the year
Source: Marks & Spencer Annual Reports (2001, 2002, 2003, 2004)

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2003
m
52
weeks
7399.0
622.8
10.5
261.3

2004
m
53
weeks
7,727.1
722.7
11.5
289.1

The Retail Marketing Mix

In June 2004, Stuart Rose was appointed to be the new Chief Executive and Steven Sharp the
Executive Director for Marketing, Store Design and Development (Rankine, 2004a). The
senior team developed new business plans and managed to defeat a hostile takeover bid by
Philip Green worth 4.00 per share, but the shares slipped to 3.28 by 1st November 2004
(Rankine, 2004b). During this period, a strange phenomenon took place. It became clear that
not only the shareholders but the consumer at large held M&S in a special position and felt
they owned the company. This sentiment was used to generate the new Your M&S
advertising campaign and logo. Steven Sharp, the Marketing Director at M&S stated that
Marks & Spencer means a lot to everyone customers think they own it, staff think they
own it and, of course, the shareholders do own it (Martinson, 2006).
Recovery Plan
Harris and Walters (1992) model of store positioning, based on the four overlapping circles
of merchandise characteristics, trading format, customer service and customer
communication, is proposed to be central to the competitive strategy of multiple retailers
(Figure 1). The authors suggest the four factors interact to create the market positioning of a
company and provide detailed flowcharts and descriptions for each contributing factor.
Moreover, they link store positioning to critical success factors, such as sales revenue; gross
profit and gross margin; and sales per square foot. This framework is useful in exploring the
recovery of M&S. The first step was to take the company back to basics by reviewing the
strategy to ensure that the offer for the target audience was right. This led to the plan, where
the main goals were to get the correct product for the various customer groups, to implement
a staff training programme to improve customer service, to refurbish the stores and to
communicate all of this to customers.
Merchandise Characteristics
The reputation of M&S was built on quality, reliability and service. Suppliers were nearly all
UK based with long term contracts. However, when firms such as Next, Top Shop and
George started to source outwith the UK, they could be far more competitive on price,
providing more fashionable clothes with ranges that were changed frequently due to Quick
Response methods (Birtwistle, Siddiqui and Fiorito, 2003). This led M&S to source from
abroad but they failed to pass on the increased margin to the customers, hence they remained
uncompetitive. Customers viewed the clothing ranges as unfashionable, unattractive and
over-priced. During 2006, there was a launch of the new focused ranges of womenswear and
an expansion of the Per Una brand, created by George Davies of Next and George at Asda.
This undoubtedly improved the image of the brand and increased footfall. When Stuart Rose
became the Chief Executive, M&S had 16 fashion sub-brands, quality and styling was inferior
to the competition and due to the lengthy supply chain fashion trends were missed (Rose,
2007). In the new strategy, M&S continue to use world wide suppliers with relationships
based on partnerships rather than the previous paternalistic management style (Khan, 2006).
This has enabled the firm to reduce supply chain costs by 100m (Rose, 2007). For the
clothing ranges, M&S invested in design process and product development staff giving the
teams full product control, making the company more agile and enabling lead times to be
reduced, giving increased flexibility and reducing stockholding from 4bn to 1.3bn (Khan,
2006; Rose, 2007). However, it has forced suppliers to take on increased risks by having to
be very flexible, producing short runs and by storing fabric and stock (Birtwistle, Moore and

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Fiorito, 2006). Every week Stuart Rose reviews stockholding and supplier commitments to
ensure that price points and quality are right and he has implemented a new strategy of good,
better, best ranges, each representing good value (Rose, 2007). To create products to the
various customer groups the Customer Insight unit holds regular focus groups where
customers are provided with samples of goods. For example, to understand the requirements
of the older consumer, M&S invites in the members from the Women's' Institute in to give
honest, highly opinionated advice (Woods, 2007)
Figure 1: M&S Recovery Plan

Merchandise
Characteristics

Customer
Communication

Trading format

Customer
service

Merchandise characteristics
Reduce sub-brands and options
Reduce price points
Improve the quality
Improve supply chain flexibility
Customer service
Improve overall customer service
provision
Implement an all staff training
programme
Trading format
Improve old and tired stores
Open up space
Use glass partitions
Improve merchandising
Customer communication
Customer focus groups
Advertise using TV, Radio, Magazines,
Posters, Taxis
Increase positive PR
Corporate social responsibility message

Source: Harris and Walters (1992)

Customer Service
For many years M&S customer service was based on the halo effect of their liberal returns
policy. Moreover, they used not to have fitting rooms and did not accept credit or debit cards
and even when they did introduce them they did not communicate this fact to their customers.
M&S is aware that customers have become more demanding with higher expectations in
terms of service and that they had become less competitive in the rates they were paying shop
floor staff, hence they found it difficult to recruit quality staff. A customer service
programme was created by Mary Gober and implemented in 2005. All 56,000 members of
staff attended and this training is ongoing. The key message is that the customer comes first,
by making eye contact, providing excellent service in key areas such as the fitting rooms, at
the till and information areas, and in the cafs (Anon, 2006). For example, all staff have to be
able to handle queries on fashion trends, sizes and pricing, fittings and alterations, offers and
incentives. M&S also increased the number of staff in areas such as shoes where customers
need more assistance and this investment in product and sales training for shop floor staff is
paying off.

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Trading Format
M&S had been very slow in taking up the trend to move to out-of-town retail parks (Khan,
2006) and many of their smaller stores had not been refurbished in recent years. Davies and
Brooks (1989) argue that the best way of getting consumers to re-evaluate the product is to
undertake a store refit. A plan to modernise the stores was implemented in 2006 and the first
roll out of the new format began. In the first year M&S spent 500m and they plan to spend
an additional 800m in the next years (Fletcher, 2007; Rose, 2007). The process consisted
initially of improving the store environment by taking away the plethora of signage. This was
followed by a number of new store formats hence an order for 100 new escalators, 100 lifts
and 20 miles of new refrigeration units was made (Rose, 2007). The improved product offer,
the service and the increasingly attractive store environment has led to 16 million shoppers
visiting the stores each week (Marks & Spencer, 2007).
Customer Communication
In general, customer communication has used the in-store magazine. First forays into
advertising went drastically wrong when their TV campaign pictured a naked women, size 14,
running up a hill. This sent a completely wrong message out to their customers (Khan, 2006).
Today they have become the leader in retail marketing communication. The first advertising
campaign during autumn 2004 featured the food offer using mouth watering food
photography and a sensual female voice-over stating this is not just food, this is M&S food.
This TV campaign presented an entirely new format, which has been dubbed food
pornography. For example, the chocolate pudding advertised just before Easter 2005
increased sales by 3,500 per cent and as Steven Sharp said at the time it makes you want to
lick the telly! (Martinson, 2006).
When the clothing range had been reviewed and new lines introduced the spring summer
season was preceded by a strong advertising campaign which included TV, radio, cinema,
print, posters and even five M&S branded taxis. This was very successful and attracted
customers into the stores; sales and profits increased. A number of models present the M&S
look such as Noemie Lenoir, Laura Bailey and Myleene Klass. Now anything worn by
Twiggy, the 1960s fashion icon, Erin OConnor or Lizzy Jagger, the daughter of Rolling
Stone Mick Jagger sell out in days. The attractiveness of the marketing campaign is that it
appeals to all age groups. Whereas the womenswear range is presented by models, the
menswear range is promoted by celebrities such as the comedians Jimmy Carr, Martin
Freeman and Bob Mortimer and football pundits such as Alan Hansen, Ian Wright and Jamie
Redknapp. Bryan Ferry the voice of Roxy Music is the face of the Autograph range for men.
The 2006 Christmas campaign last year featured the Ice Hotel in Sweden with Shirley Bassey.
David Bailey did the photography to give the campaigns fashion credibility (Brown, 2006).
The success of these campaigns can be measured not only in sales but also by the number of
retailers such as Matalan, Debenhams, John Lewis Partnership and Next copying the format.
Recently, the look behind the label campaign promoting fair trade products, environmental
concerns and customer health has increased consumer perception of the organisation and
helped to attract 350,000 new customers a week into the stores (Brown, 2006). M&S was
awarded Company of the Year in 2006 and the Responsible Marketing Award in 2007 by
Business in the Community. The marketing expenditure for the year ending 2007 was 145m
of which approximately half was spent on advertising (Fletcher, 2007).

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The first thing Stuart Rose did was to reduce stockholding by making big reductions on lines
that were over stock stocked. Now the company have frequent promotions such as getting a
bottle of wine free when spending 35; offers of three for the price of two on food or Tshirts or the chance of entering a competition when purchasing certain goods. Direct
marketing methods are still being used. The in-store magazine is the most important belowthe-line marketing communication method along with the transactional web-site and offers
emailed to the M&S credit card customers.
From the day they courted George Davies to create the Per Una range for M&S and then
enticed Stuart Rose to take up the leadership of the brand, PR has been an extremely
important factor in protecting the brand, from hostile take-over to promoting the brand to past
and new customer groups. During the hostile take-over there were as many as 2000 articles
about M&S per month and it was the lead piece twice on the BBC news at 10.00 am (Rose,
2007). Recent promotions include Look behind the Label and Plan A campaigns setting
firm environmental and ethical targets for the company.

Results and Conclusion

The recovery plan appears to be working well with shares peaking at 7.49 before the
announcements of the results in May 2007 (English, 2007). The year end results to March
31st 2007 showed an increase of 28.5 per cent in profits to 965.2m, with a 6.1 per cent
increase of like-for-like sales to give credence to the five year recovery plan due to be
completed in 2009 (Table 2). M&S has 520 stores in the UK and has plans to open several
Simply Food format stores as well as some out-of-town outlets and they plan to employ an
additional 10,000 members of staff (English, 2007).
Table 2: Profit and Loss for 2005 2007
Year ending
31st March

2005
2006
m
m
52 weeks
52 weeks
Turnover
7,490.5
7,797.7
Operating profit
505.1
745.7
Dividends per share (pence)
12.1
14.0
Profit/(Loss) for the year
586.2
523.1
Source: Marks & Spencer annual reports (2005, 2006, 2007)

2007
m
53 weeks
8,588.1
965.2
18.3
659.9

M&S has been more successful than other retailers in using integrated marketing
communication methods to get its message to disaffected past and present customers, increase
brand equity and support the recovery of the firm. The advertising campaigns have been a
strong contributor to the re-evaluation of M&S as a retailer and have helped to increase
footfall and the conversion rate. It has also led to Steven Sharp achieving a number of
marketing awards, such as the Marketing Societys Marketer of the Year 2006; the Marketing
Week Effectiveness Awards 2006; and the Chief Marketing Officer of the Year award at the
Global Marketer Summit in Frankfurt am Main in 2006. In January 2007, Stuart Rose at last
used the r word and stated the business was now well into the recovery phase. However, in
a very competitive trading environment, turning the short term recovery into long term growth
will be more difficult and the City is waiting to see the direction of the long term strategy.

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