Executive Summary
With the increasing dynamic business environment, M&S faces severe external influence within its business operations from external factors. These external factors will be examined through PESTLE analysis in the further discussion. Furthermore, the report will go through company`s financial statements to undertake ratios, which will examine liquidity, profitability, efficiency, and solvency of M&S in detail. Unique Selling Proposition of M&S lies in offering higher quality products across its entire product and service offerings. Company ranks itself as the leading retailer to commitment towards delivering excellence. However, M&S strives to exceed the customer expectations.
Introduction
The report brings out a discussion on business analytics on Marks and Spencer within retail sector. This report will carry examination of comparison of ratio analysis to inspect financial performance. Ratio analysis is an effective tool, which examines the effectiveness and relationship of company`s financial elements to another financial elements. M&S is one of the well-known British multinational retailers as headquartered in UK. M&S has evolved in business, which specialises in home products, clothing, luxury food items. The company has earned its reputation and commitment to sustainability and also the responsible sourcing. As of 2023, the organization currently employs 65000 individuals who actually contribute towards success (Marks and Spencers, 2022). Furthermore, there will be analysis on current position, competitors and its market share in retail market. In addition to this, M&S will undergo Pestle analysis to examine different external factors and its influence on company`s internal management and financial performance.
Financial performance
Ratio analysis examines how efficiently the company performs to obtain a look into company functionality such as efficiency, revenues, profitability, liquidity, and leverage from financial records. It can avail greater insights in company`s balance sheet and income statement by using numbers and analysing them efficiently (Morningstar, 2024).
Liquidity ratios-:
Liquidity ratio determines the ability of the company to pay off its current obligations through its current assets. The ideal ratio is 2:1 but Marks and spencer is not able to maintain minimum current asset levels to pay off current liabilities. Quick ratio determines absolute liquidity where Marks and spencer has least quick assets to cater its obligations. The company faces some problems in funding as well as liquidity and there is a need to generate current assets otherwise, the company faces severe stability issues in market. Below 1 of current and quick ratio means the company`s financial health is not good and it might go bankrupt as it is not likely to accomplish liabilities (Sesa, and Hasnawati, 2023).
Profitability margin examines how efficiently the company generates profits in proportion to total sales. Gross profit margin shows the relationship between profits generated after direct costs associated with operations to total sales. 50% of net gross margin is appropriate for retail industry but M&S have been generating only 30% of total sales. Due to fierce competition, retail industry faces lower profitability. M&S biggest drawback is that its business operations are expensive and inefficient. Some of its outlets are maintain and costly to run because of lack of parking nearby and tough access to customers due to Brexit and lockdown (Marks & Spencer, 2022). Higher maintenance of outlet has not helped by the underinvestment in supply chains and logistics especially during pandemic. Higher labour costs and energy costs have pushed purchasing costs as well but the overall personal disposable income has been falling and the worsening condition of cost-of-living squeeze.
Return on asset depicts the ability of the company to generate net profits from total assets employed within business. The ability of Marks and spencer to generate higher profitability by using assets is extremely low. It can also mean that company has unnecessary assets, which do not generate much of profits. Assets are not much efficient to generate higher profitability for M&S.
Operating profit margin is profitability ratio, which has been used to determine operating profit and net sales, which have been generated through operations. The company`s operating margin is quite low as it is being suffered from higher indirect costs associated with operations such as staff, administrative costs, and licensing costs during Brexit and pandemic (Marks & Spencer, 2022).
Net profit margin depicts the overall ability to generate net profits from total sales. 2-3% of total net profit margin is quite low, which is barely distributable to the investors or shareholders. Higher cost of production, management, and outlets have led to decrease in profits. Also, the company will have to remain competitive in terms of its prices while comparing it to other retailers (Davey, 2021).
Efficiency ratio examines how efficiently the company uses its assets to generate overall sales. 2.5 times of asset turnover is considered as good. Asset turnover depicts how efficiently the company uses total assets to generate total sales. It has been used to measure the company`s performance for short term purpose. A higher asset turnover margin is always better as compared to lower one. In this way, company generates asset-based revenues (Efficiency ratios, 2022).
Asset turnover is quite lower that means the company`s total assets are not efficient or capable enough to generate sales because of pandemic and BREXIT. Receivable turnover tracks how efficiently the company can collect payments from the customers for purchased goods and services within the fiscal year.
A higher account receivable is always favourable and retail industry maximum have higher number of customers who pay off its expenses frequently or immediately. When this ratio is low then organization might increase ratios by selling more and limiting the customers to limit credits so that it can generate stable revenues (Davey, 2021).
Under solvency ratios or gearing ratio, this portion uses two important ratios such as Debt equity ratio and interest coverage ratio. Debt equity determines the proportion of debt and equity within the overall capital structure. 2:1 ratio of debt equity is ideal but Marks and spencer does not employ much of loans and borrowings within its capital funding. However, debt is a cheaper source of funds, which is also tax deductible. To overcome this higher competition from other retailers, the company can employ more of funds from debt source so it can invest more in retail stores that can generate higher profits.
Interest coverage ratio determines the frequency of the company to pay off the interest obligations within the given fiscal year. 2-4 times of ICR is appropriate enough. It is important to note that the company has lower obliged funds employed within business and lesser amount to be paid as interest obligation (Chavan, 2019).
Industry sector
M&S has been ranked as leading departmental stores and retail business to improve homes. M&S faces fierce competition from Aldi, Tesco, Waitrose, Iceland, Ocado, Sainsbury and Asda. Resilience of the online grocery shopping especially due to inflation as when household penetration has fell because of changing lifestyles. However, many retailers have lost their existence during COVID-19 but still several brands have been chasing growth because they lost their share due to higher inflation and are keen to communicate value amongst consumers. Brand promotion has been driver of increasing discretionary spending.
(Source: Kamcity, 2024)
The above determines change in sales from 2023 to 2024 year for each of the competitor, which has affected market share based on revenue. However, Tesco has the highest market share followed by Sainsbury and Morrisons. However, M&S has ranked amongst top supermarket retailers amongst Waitrose, Iceland, Ocado, and Aldi. M&S have nearly 1064 stores in UK and at 406 different store locations. During 2023, the company has higher profitability and revenue as well where it undertakes 10 times of organization`s international operations. Nearly, 2/3rd of its revenue comes directly from food segment that have been accounted for 7.2 billion pounds in 2023. Footfall in physical stores have declined over last 10 years where it sits for 15 million visits every week in 2022. Its market share had decreased a lot because of bad decisions such as loyalty program, which remained unsuccessful. During 2020, company faced poor leadership skills and team within organization but in 2021, it employed an adamant leader to enhance its implementation of strategic decisions (Statista, 2024).
PESTEL Analysis
Pestle analysis is an effective tool, which allow the company to evaluate factors that directly affect business in future. It assists businesses for the decision makers to understand potential factors around organization.
Political factors
Marks and Spencer mainly operate in UK but free trade has enabled easy importing of foreign products to sell in outlets at cheaper price. Brexit in UK affects trade and policies. UK is to leave EU that is hard Brexit, which might result in losing numerous trade policies with the European union. It results in higher product costs for the end consumers (BBC.com, 2020).
Economic factors
Conflicts with the smaller retailers on increased pricing for product might rise because political effect. During COVID-19 and in the times of recession, consumers tend to have lower disposable income and they are less likely to spend on M&S products. Since, the company operates in different nations then it is exposed to exchange rate risk. During 2021, the company underwent 90% profit crashes that hammered clothing sales because of COVID-19. Crashes in UK clothing because of multiple lockdowns has affected annual profits (M&S, 2023). Most importantly, economic implications of Brexit have affected potential disruptions in the supply chains because of change in consumer behaviour with uncertain economic in future.
Social factors-
M&S wants to expand organizational brand with an aim to keep up the changing trend in market. M&S and Asda appeals in different nations in regards to demographics and social class, which has implications on how to mitigate the risks occurred due to current market problems. Cheap clothing industry have been increasing with changing trend in market and it avails lesser expensive versions of clothing market (Kamcity, 2024).
Change from the boomers into generation X and millennials neds that company to alter strategies. Selling clothing line basically depend on demographics and locality. Shops in London might not stock classic collection rather they would go with the limited collection of stock and full autograph range. Increasing trade is due to availing credit cards and company gets advantage of opportunity in availing customers (M&S, 2023).
Technological factors
Self-checkout is amongst important biggest market trend especially in the food stores. Industry wide trend has been designed to assist retailers to save funds, which might be spent on cashier. It may offer customers to checkout overall experience, which is generally faster. M&S will implement number of self-service checkout systems across retail stores. M&S already has its strong e-commerce presence that will offer goods ranging from clothing to foodstuffs and home products. The company focused on simplification as well as consolidation of M&S supplier`s base based on technology (Kamcity, 2024).
Legal factors
M&S conducts training sessions on health and then update each year with an aim to keep updated with current legislations and policies. However, it was accused to protect employees and workers from potential risk of exposure to asbestos (Johnsson, and Kramer, 2023).
Environmental factors
This factor source of the fresh milk from RSPCA, which is assured daily farms.
Conclusion
From the above discussion, it is seen that Marks and spencer suffer from poor profitability performance and there is a need to improve its overall performance by integrating newer technology to enhance customer`s experience. Also, efficiency of the company is not upto the mark because assets are not efficient much due to disability to generate higher total sales. External factors affect the profitability and company`s overall performance especially economic factors, which determine disposable income leading to spending ability of consumers. It is recommended that M&S has been experiencing outdated store portfolio where men`s wear needs to be updated. There is a need to establish empowered supply chains after COVID-19, since the company has faced severe challenges regarding data analytics. However, it can use efficient AI tools and automation by availing training programs to employees to get advantage of more sales.
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References
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