Porter’s analysis works on tabulating the five forces and analyzing the impact on M&S.
Threat of New Entrants (Barriers to Entry)
Retailing market has high entry barrier as the capital investments are huge to enter the market and to achieve cost efficiencies and economies of scale that retailers like M&S has would be very difficult to achieve for a new player. The case of peers is different, however M&S popularity and focus on quality ware would make competition fight hard for breaking M&S loyal customers. Also matching the channel efficiency by M&S would be difficult for new entrants. Keeping peers at bay would be difficult as although M&S has quality products advantage, competitors are offering discounts and price offering that woo away many of the potential customers.
Threat of Substitute Products
M&S requires continuous innovation to keep brand position strong and to remain distinctive to meet the demands of its customer base. The clothing business is beset with substitutes – it is very easy to copy designs and get similar design at much reduced cost elsewhere. The food business is already under attack by the big stores – Tesco, Sainsbury and ASDA which have a similar range of products. M&S private label product line still offers some distinction. Going forward M&S focus on its food line is expected to offer clear advantage over the competitors (ivory research, 2016).
Bargaining Power of Buyers
Customer’s bargaining power is significant. Customer’s price sensitivity can force the hand of the retailer. Customer has very low switching costs and has many alternatives available. M&S needs to build up its loyalty and offer its customers unmatched value and conveniences that are difficult to match. M&S is also vulnerable to negative shifts in customer perception in UK. Any move towards disloyalty towards British products is likely to have significant effects on overall company outlook. M&S competitors are also focusing on customer relationships so M&S needs to be vigilant and protect its turf. According to Euromonitor M&S had 40% value share in departmental stores. High share in this segment makes M&S vulnerable as well as in 2016 stock surplus in apparel and footwear because of unseasonable conditions led to value decline.
Bargaining Power of Suppliers
In late twentieth century M&S suppliers were primarily British, but competitive pressures forced M&S to outsource and reduce its costs weakening the power of suppliers. Focus on private label also gives M&S power over external suppliers. Further switching costs for M&S suppliers, especially since M&S depends on outsourced suppliers, are quite low.
Intensity of Competitive Rivalry
Competition is strong for the retail sector from other supermarket chains for its home wear, clothing and fashion products as well as for food products. The competition is further growing in online segment where users are choosing click and collect to have a pseudo in-store shopping experience at reduced costs than in-store shopping. M&S has been able to build up its online sales with percentage of online in total retail sales growing steadily YoY. Loyalty membership cards can help stem this trend but the same strategy can also be followed by other supermarket chains. As per Euromonitor M&S is currently benefitting from highly personalized Sparks loyalty program. The focus has shifted to older female customers and everyday low pricing than discounting. The low cost strategy has resulted in decline in sales of clothing business. Also M&S has announced plans to open new “simply food” outlets, which have upmarket positioning.