Marks & Spencer's unique retailing formula is proving successful in an increasing number of markets around the world. Our strategy is to accelerate expansion overseas while continuing to exploit the many opportunities for growth here in the U.K.
Marks and Spencer p.l.c. is the largest retailer in the United Kingdom, with nearly 300 company-owned Marks & Spencer (M&S) stores in its home market. The stores sell clothing, footwear, gifts, home furnishings, and food, with many of these items sold under M&S's private-label St Michael brand. The company also owns and operates nearly 100 additional Marks & Spencer stores in Europe, Hong Kong, and Canada, and franchises 85 Marks & Spencer stores in Europe, the Far East, Australia, the Middle East, the Bahamas, and Bermuda. Marks and Spencer also owns the Brooks Brothers chain of men's clothing stores, which consists of more than 170 units in the United States and Japan, and the 20-store, New Jersey-based Kings Super Markets grocery store chain. The fast-growing Marks and Spencer Financial Services unit offers its customers credit cards, personal loans, life insurance, and savings, investment, and pension plans. About 17 percent of Marks and Spencer's revenues are generated outside the United States.
In 1894 Michael Marks, born in 1859 in a Jewish ghetto at Slonim in the Russian Polish province of Grodno, entered into a partnership with Tom Spencer, born in Skipton, Yorkshire, in 1851, with Spencer paying £300 for his half-share. Ten years earlier, Marks, a peddler, had opened his first stall on a trestle table in Leeds market, selling a range of cheap goods all priced at one penny, including hair pins, dolly dyes, and black lead; he is said to have paid 18 pence for the privilege. Tom Spencer, cashier for Leeds textile wholesaler Isaac Jowitt Dewhirst, was an experienced bookkeeper, and Dewhirst had helped Marks by teaching him English and providing him with small loans.
By 1894 Marks had moved house from Leeds and, after living in Wigan, had settled in Manchester, where he acquired a shop and a home. He also had opened market stalls--bazaars, he called them--in several towns, including Warrington, Bolton, and Birkenhead. The new partnership immediately looked further afield to Birmingham and Newcastle and in 1899 to London. Manchester, however, remained the headquarters, and the first Marks and Spencer warehouse was opened there in 1897. In 1903 the partnership was converted into a limited company with £30,000 in £1 ordinary shares of which 14,996 each were allotted to Marks and to Spencer, the latter retiring in 1905. Upon Marks's sudden death in 1907, his executor, William Chapman, a self-made handkerchief manufacturer, became the dominating force in the business.
In each of the first Marks and Spencer bazaars the slogan had been "Don't ask the price, it's a penny," but this selling policy soon changed. It was a landmark date in 1904 when a new store in a shopping arcade was opened in Leeds not far from Marks's first market trestle table. Two years later the most successful store was Liverpool, with yearly receipts of £9,857. Brixton was second with £9,766. Leeds came third with £8,701 and Manchester fourth with £8,459. In 1907 profits reached a new peak of £8,668 and the dividend paid was 20 percent.
Marks's son Simon acquired his first allocation of shares in April 1907, eight months before his father's death, and from the start he was determined to acquire full control over what he conceived of as a family business. It was not until 1916, however, that he ousted Chapman and became chairman. By then the company had expanded significantly; its turnover in 1913 was already £355,000. In addition, it had successfully braved World War I. In 1915, a year of bitter boardroom battles--concerned not with management policy but with financial control--its turnover was more than £400,000, and a dividend of 50 percent was paid. By then there were 145 branch stores, only ten of them in market halls. No fewer than 56 were in the London area. Some of them had been bought in clusters from existing chains.
Simon Marks and Israel Sieff Took Over in the 1910s
Simon Marks, a man of intelligence and drive, in effect entered into his own partnership in 1915 when his close friend Israel Sieff, keenly aware of world trends both in politics and in science, joined the board after having been blocked previously by Chapman. In 1916 Marks won a lawsuit against Chapman, and in June 1917 Chapman resigned. The firm's initials M and S now stood symbolically for Marks and Sieff. The two friends had first met in Manchester, and each was to marry the other's sister. If their talents were complementary, their vision was shared, and it was a vision that extended far beyond the confines of the business. Succession seemed natural in 1964, when on Simon's death, Israel became chairman, to be succeeded in 1967 by his son Marcus, who like Simon Marks and Israel, became a peer.
In 1926 the company, needing an injection of cash, had been converted into a public company to raise new capital, fully supported by the Prudential Assurance Company, which played a key role in the negotiations. The capital consisted initially of one million ordinary shares of ten shillings each, £330,000 of which were issued, and 350,000 cumulative participating preference shares at £1. There were to be further appeals to the public in 1929 and 1934, when the nominal value of the capital of the company was raised to £3.05 million. The new A shares issued then carried no voting rights. Indeed, there was to be a sharp distinction between management and ownership until 1966, when Israel Sieff concluded that the granting of voting rights was by then "in line with the enlightened policy which governs our business."
Marks hoped in 1934 that in the future there would be "an ample margin of working capital" for management to promote a substantial development program that included the purchase of properties as well as store building, and the hope was fulfilled. Already by 1930 approximately four-fifths of the new company's assets consisted of freehold and leasehold properties, and between 1931--a year of international depression--and 1939 no fewer than 162 new stores were built or rebuilt, all on inner-city sites. On the eve of World War II, Marks placed more emphasis on replacement of old premises by new than on an increase in the number of stores in itself. Store design had been transformed. Customers were to be attracted into them, to look around even when they did not buy.
The business philosophy that Marks and Sieff shared was associated with social change even in years of economic depression. As Marks put it in 1936, "Goods and services once regarded as luxuries have become conventional comforts and are now almost decreed necessities. A fundamental change in people's habits has been brought about. Millions are enjoying a substantially higher standard of living. To this substantial rise in the standard of living our company claims to have made a definite contribution."
"Efficient distribution," he went on, "is not a static conception. It involves constant alertness and study of the changing habits, desires and tastes of the consumer." Sieff, who has given his own account of the ten years from 1926 to 1936, described his "mission" in practical terms. "We saw not through visionary idealists' clouds but from practical results in days of high competition that production and distribution could become a co-operative process making a positive contribution to the common good." Neither he nor Marks wanted to be involved in production, but through bulk buying they were able to influence the policies of those who were producing for them.
In the first postwar year, 1919, turnover had been £550,000; in 1939, when World War II broke out, it was £23.45 million. In the latter year there were 234 stores and more than 17,000 employees. In 1924 the head office of the company moved from Manchester to Friendly House, Chiswell Street, London EC1. In 1928 it was moved to a new building, named Michael House, in the same street. Three years later, there was another move to Baker Street, the present headquarters. Meanwhile, the now-familiar trademark, St Michael, had been applied first in 1928 to products sold in Marks and Spencer stores, and its use was extended gradually until Marks referred to it for the first time in a chairman's speech in 1949.
The Marks and Spencer stores of the interwar years represented a new form of business, challenging the role of older department stores. Yet such interwar stores were simple and unpretentious when compared with the superstores of the late 20th century that were to be visited by prime ministers and royal families. Indeed, the total cost of a new store in the 1920s was exceeded by the costs of electrical installation in the stores of the 1960s.
The prewar stores owed something to American experience, for it was after Marks first visited the United States in 1924 that he decided to follow, if not to copy, American developments. In 1927 a price limit of five shillings per item was set and there was a continuing emphasis on value for money, but there was an increasingly wide range of goods on sale. By 1932 there were more than 20 departments in the biggest stores, including ladies' and children's drapery; men's and boys' wear; footwear; fancy goods; household linens; gramophone records; confectionery; toiletries; lighting; toys; haberdashery; millinery; china, enamel and aluminum ware; stationery; gifts; and food, recently introduced into a number of stores. Along with textiles, sales of which increased three times between then and 1939, food was to be a Marks and Spencer staple of the future.
Marks was right to emphasize how in relation to textiles, in particular, his business within a changing society was both to respond to consumer tastes and to develop them; in an address to shareholders he stated that "it is the function of the modern distributor to purchase healthier and more attractive clothing." The revolution in food followed a generation later with the introduction of such items as iceberg lettuce, smoked salmon, Indian and Chinese foods, avocados, kiwi fruit, and wine. By then Marks and Spencer stores also were selling toiletries of all kinds, travel and holiday ware, and fashion clothes for men as well as women.
Wartime and immediate postwar austerity were bound to influence both consumer tastes and company profits, although even then the company benefited from the standardizing element in the government's Utility Scheme that regulated the design of a range of consumer goods and favored bulk buyers; the scheme remained in operation until 1952 and in modified form until 1955. The company also was well poised to establish an overseas presence. A Marks and Spencer Export Corporation had been founded in 1940, and in 1955 it was exporting goods to the value of £703,000 to other overseas retailers. It was in 1954 that one of the first editions of a new in-house journal, St Michael's News, claimed rightly that by then Marks and Spencer was "news to the general public." This was the year when the Chancellor of the Exchequer, R. A. Butler, claimed that the country would double its standard of living during the next quarter of a century, and the company was well-positioned to move into the unprecedented consumer boom of the late 1950s and 1960s.
Turnover rose from £95 million in 1954 to £148 million in 1960, and profit before tax increased from £7.87 million to £12.81 million. It was in 1960, too, that a ten-year progress record became a convenient and impressive feature of the published accounts. The ten-year progress record for the years from fiscal 1973 to fiscal 1984 was to be even more striking in terms of sales and profits, although economic conditions during that period were to be far more difficult. By fiscal 1973 turnover had reached £496 million (excluding new sales taxes); in fiscal 1984 it was £2.9 billion. Meanwhile, profit before tax leapt from £70 million to £265 million. More sophisticated statistics revealed that sales per employee had risen during the same ten years from £18,651 to £73,099 and per square foot of floor space from £96 to £372. Profit per square foot had risen from £14 to £38.
By 1974 there were 17 overseas stores--the first of them opened in Canada in 1972. A Paris store was opened in 1975. Also in the early 1970s came the acquisition of three Canadian chains: Walker's clothing stores, which were eventually converted to Marks and Spencer stores; D'Allaird's women's clothing stores; and Peoples general merchandise stores. Between 1974 and 1977 exports tripled to more than £40 million and the company won the Queen's Award for Export Achievement. It was deeply committed also to another national achievement--supporting British producers whenever it could and encouraging them to develop efficient new lines of business. In the process it established close connections with a number of suppliers, which placed it in a virtually monopsonistic position. Relationships with the firms from which it was buying were handled as carefully as relationships with customers.
Before 1939 the main emphasis had been on the price-reducing advantages of bulk buying; during the 1960s and 1970s the focus was on quality control, not least in textiles and in food, then the company's two biggest lines of business. There was continuity, however, rather than a basic shift. As early as 1933 a merchandising committee had been formed to coordinate the work of the various buying departments; a small textiles laboratory had been created in 1935, and a merchandising development department had followed a year later. In 1946 a factory organization section, later called the production engineering department, had been opened "to assist manufacturers in the progressive modernization of their plant and to adapt themselves to the latest technical advances," and two years later a food development department was created. The department dealt both with British and with foreign suppliers, including suppliers of Israeli oranges; there were visits to Israel, a country especially favored as a supplier as it was close to the hearts of Marks and Sieff, to deal with storage and packing.
Apart from research development and publicity, the company had devised its own approach to the buying process through the training of specified "selectors," so described for the first time during the 1930s, and merchandisers, who meticulously studied store demand and turnover before placing orders with producers. The system was integrated, and there was feedback from store to factory.
Quality control, encouraging suppliers in the interests of quality to use the most modern and efficient techniques of production provided by the latest discoveries in science and technology, was a "principle" upon which Marks and Sieff insisted. Unlike most retailers, Marks and Spencer had its own laboratories and employed its own scientists. Other "principles"--and they were formulated and listed as such by Israel Sieff in 1967 after Marks's death--were to guarantee customers high quality when they bought products using the St Michael's brand name, "to plan the extension of stores for the better display of a widening range of goods and for the convenience of our customers," "to simplify operating procedures so that the business is carried on in an efficient manner," and "to foster good relations with customers, suppliers and staff." "Operation Simplification," introduced in 1956, led to the saving of huge amounts of paper and electricity. The lessons were never lost.
Staffing matters had been taken seriously even before the 1930s, when a personnel department was set up in 1934, a year when the word "welfare" began to be used inside the business. Thereafter a wide enough range of "welfare activities" was organized to make Marks and Spencer a kind of welfare state in itself. They were appreciated by most employees, although a small minority found them somewhat stifling.
Meanwhile, great attention was paid to breaking down what Marcus Sieff called the "fear, suspicion and insecurity that threatened human relations in industry." The familiar term "industrial relations" was taboo at Baker Street; it seemed to imply that there were two sides. In consequence, there was some trade-union criticism of the approach. "We are human beings at work, not industrial beings," Sieff emphasized in 1980. In the same year he stressed that training was not mostly a matter for workers on the shop floor whose talents needed to be mobilized. It began at the top. The first task of the chairman was "to impart the philosophy of our evolving business to our executives." The philosophy extended from employees to pensioners and to schemes for neighboring communities as well as for inner-city stores.
In 1965 Israel Sieff became chairman of the company and Marcus, who had joined the company in 1935 and became a director in 1954, was made vice-chairman. He became chairman in 1972 after J. Edward Sieff, Israel's brother, who had joined the company at Simon Marks's invitation in 1933, had had five years in the chair. There was thus a strong family thrust behind the company and Marcus (Lord) Sieff remained chairman until 1984, when a man born outside the family circles, Derek (Lord) Rayner, took over and rigorously developed the group's activities overseas. Spotted by Marcus Sieff as a young manager, he had joined the company in 1953 and became a director in 1967 and joint managing director in 1973. In 1979 he was seconded to Prime Minister Margaret Thatcher's newly elected government in an effort to streamline the civil service, returning to the company in 1982.
Financial Services Introduced in Mid-1980s
Rayner was chairman of the company from 1984 to 1991, and in that time several significant events occurred. In 1985 the Marks & Spencer Chargecard was launched nationwide in the United Kingdom. Although this move came rather late for such a large retailer, Marks and Spencer quickly moved deeper into financial services than other retailers. The company soon introduced personal loans, added unit trusts in 1988, and the following year introduced an investment plan called personal equity plans (PEPs), which were tax-sheltered vehicles for share purchases. These financial offerings eventually would form the nucleus of what became known as Marks and Spencer Financial Services.
In 1986 a line of furniture was introduced into Marks and Spencer stores. Two years later, Rayner began to move more aggressively overseas. In addition to opening the first two M&S stores in Hong Kong that year, the company entered the U.S. market for the first time through two acquisitions: the New Jersey-based Kings Super Markets grocery store chain and the Brooks Brothers chain of men's clothing stores, a £493.4 million (US $750 million) purchase.
Overseas Growth Continued in the 1990s
Rayner retired in 1991 and was succeeded by Richard Greenbury, knighted in the 1992 New Year's Honours List. Keith Oates, who served as deputy chairman and joint managing director under Greenbury, had joined the business at a high level as finance director from outside--a rare kind of appointment--in 1988. Overall, the company continued its foreign expansion under Greenbury, although difficulties with the Canadian operations led to the 1992 sale of Peoples and the 1996 sale of D'Allaird's, which was purchased by specialty retailer Comark. Brooks Brothers also proved nettlesome, but Marks and Spencer was able, finally, to turn that chain around by the mid-1990s. The company conceded by then that it had paid too much for Brooks Brothers, but was heartened by an 81 percent increase in operating profit in fiscal 1996.
Meanwhile, the Marks and Spencer chain was being expanded both abroad and at home, with both company-owned and franchised units. M&S stores debuted in Greece and Portugal in the early 1990s through franchise agreements, followed by mid-1990s franchise openings in Denmark, Austria, Hungary, Malaysia, Thailand, Turkey, and the Czech Republic. On the company-owned store front, significant funds were committed to expand the chain's presence in two mainstay nations on the continent: France and Spain. In late 1996 the first M&S store in Germany opened in Cologne, with three additional units to open in Germany by late 1998. Two stores opened in Seoul, South Korea, in the spring of 1997. Back in the United Kingdom, the company in July 1997 announced that it would pay Littlewoods Organisation PLC £192.5 million (US $323.1 million) to acquire 19 stores, which would be converted to Marks and Spencer stores. Another franchise agreement was signed late in 1997 toward the opening of the first Australian M&S unit by late 1998. Additional franchised debuts were to take place in Dubai and Poland, with the company also investigating Latin America, China, Japan, and Taiwan.
Also expanded under Greenbury's leadership were the offerings of Marks and Spencer Financial Services. In 1995 the unit entered the life insurance and annuity market by offering five basic products: a protection policy, a critical illness policy, a combination protection and savings policy, and two personal annuity policies. Of further note during this period was the introduction of an M&S mail-order clothing catalog, the company's first foray into home shopping. In addition, Marks and Spencer in March 1998 won a libel suit against Granada Television over a World in Action program that had damaged the company's reputation by implying that M&S used child labor and misled customers by labeling clothing made overseas as "Made in the UK." Granada made a public apology and paid M&S an undisclosed sum.
Fiscal 1997 results for Marks and Spencer were impressive, as the company posted a revenue increase of 8.4 percent to £7.84 billion (US $12.84 billion) and an increase in group profits before taxes of 14.1 percent to £1.1 billion (US $1.8 billion). In November 1997 the company announced that it would spend £2.1 billion (US $3.4 billion) in a three-year expansion program, aiming in part to increase the percentage of revenue generated overseas from 17 percent to 25 percent by the early 21st century. A significant portion of the funds were to be spent in Germany, where 20 to 25 additional stores might open. Also to be enlarged was the Brooks Brothers chain, which already had more than 60 stores in Japan, but which now would eventually be extended into the United Kingdom and continental Europe. It seemed as if there was no stopping the Marks and Spencer juggernaut.
Principal Subsidiaries: Marks & Spencer Export Corporation Limited; Marks & Spencer Finance plc; Marks & Spencer Financial Services Limited; Marks & Spencer Property Developments Limited; Marks & Spencer Property Holdings Limited; Marks & Spencer Retail Financial Services Holdings Limited; Marks & Spencer Unit Trust Management Limited; St. Michael Finance Limited; S.A. Marks and Spencer Belgium N.V.; Marks & Spencer Holdings Canada Inc.; Marks & Spencer Canada Inc.; Marks & Spencer (France) S.A.; M&S Export (Ireland) Limited; Marks & Spencer (Ireland) Limited; Marks & Spencer US Holdings Inc.; Brooks Brothers Inc. (U.S.A.); Brooks Brothers (Japan) Limited (51%); Kings Super Markets Inc. (U.S.A.); Marks & Spencer Finance Inc. (U.S.A.); Marks & Spencer Services Inc. (U.S.A.).