Page 279 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Retail Business Environment

Notes The Macro Environment

Due to lack of available information in this case, the PESTEL framework, which is normally
applied to analyze the macro environment, cannot provide great help in this discussion.

The Micro Environment

From the case, we can identify that “clothing” and “food” are the two major industries M&S is
involved in. These two industries have the common feature of swift change. The pace of
technological improvement and the speed of global communications mean more and faster
change now than ever before. This trend, therefore, requires managers to react swiftly to adjust
strategies which fit the changing business environment. Unfortunately, M&S seemed to have
done this poorly, as analysts commented: M&S ignored the changes in the marketplace while its
competitors quickly reacted to changes. The reasons should be analyzed by looking closer at the
micro environment.
Before using the five forces model to analysis the micro environment, the market has to be
segmented. However relatively few information for this aspect can be drawn from the case. We
roughly breakdown the clothing market into three segments numbered from 1 to 3 to which the
model will be applied (see illustration 2 below):

Illustration 2: Proposed M&S Industry and Market Framework

A. Bargaining power of suppliers

 Bargaining power of suppliers in most clothing segments is relatively low but
when purchasing cloths from luxury designer firms, the bargaining power tends to
be higher.
 M&S previously had only British suppliers for its claimed reason of high quality,
but later on it outsourced globally to lower the cost. M&S was no longer reliant on
particular suppliers and therefore the bargaining power of suppliers is lowered.
 M&S mass purchase also leads to lower the bargaining power of suppliers.
B. Bargaining power of buyers

 Generally speaking, bargaining power of buyers is high. However buyers’ power
in segment 1 is relatively low, while that in segment 2 and 3 is high.
 Products in segment 1 are usually designed for the non-price-sensitive people who
prefer quality and fashion.
 People in favour of products in segment 2 and 3 are more price-sensitive. And
normally they can choose from a variety of companies. Thus they have high
bargaining power.
C. Threat from substitutes

 Broadly speaking, threat from substitutes is very low. Only products from different
segments might work as product to product substitutes.

 In times of economic recession, people may shift from segment 2 to 3. And in times
of economic development, people have more disposable income and accordingly
more interest in products in segment 1 and 2 rather than 3.

 This means that segment 2 has the threat of substitutes from both segment 1 and 3.
Products of segment 1 and 3 normally do not directly substitute each other.

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