Marks and Spencer p.l.c.

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Marks and Spencer p.l.c.

Michael House
37-67 Baker Street
London W1A 1DN
United Kingdom
(071) 935 4422
Fax: (071) 487 2679

Public Company
Incorporated: 1894
Employees: 75,000
Sales: £5.77 billion (US$10.79 billion)
Stock Exchanges: London Brussels Paris Amsterdam

The large-scale retail business of Marks and Spencer p.l.c. has much publicized small-scale beginnings. It also has a much publicized philosophy and reputation. Over the years it has established a distinctive, if always developing, strategy and image. Indeed, in the process it has become a household name.

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 at Skipton, Yorkshire, in 1851, with Spencer paying £300 for his half-share. Ten years earlier, Marks, a pedlar, 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 had also 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 had been 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 takings 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%.

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. It had also 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 over £400,000, and a dividend of 50% 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, a man of intelligence and drive, in effect entered into his own partnership in 1915 when his close friend Israel Sieff, intellectually able and keenly aware of world trends both in politics and in science, joined the board after having been previously blocked 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 in order 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 which 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 had 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 laid 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, has 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 over 17,000 employees. In 1924 the head office of the company moved from Manchester to Friendly House, Chiswell Street, London ECl. In 1928 it was moved to a new building, named Michael House, in the same street. Three years later, there was a further move to Baker Street, the present headquarters. Meanwhile, the now-familiar trade mark, St Michael, had first been applied in 1928 to products sold in Marks and Spencer stores, and its use was gradually extended 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 had represented a new form of business, challenging the role of older department stores. Yet such interwar stores had been simple and unpretentious when compared with the superstores of the late 20th century which 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 to both 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 were also selling toiletries of all kinds, travel and holiday ware, and fashion clothes for men as well as women.

Wartime and immediate postwar austerity had been 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 was also 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 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 1972-1973 to 1983-1984 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 1972-1973 turnover had reached £496 million (excluding new sales taxes); in 1983-1984 it was £2.9 billion. Meanwhile profit before tax had 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 1973-1974 there were 17 overseas stores—the first of them opened in Canada in 1972. A Paris store was opened in 1975. Between 1974 and 1977 exports trebled to over £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 that 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 main emphasis 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 modernisation 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” that Marks and Sieff insisted upon. 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. He retired in 1991 and was succeeded by Richard Greenbury, knighted in the 1992 New Year’s Honours List. Keith Oates had joined the business at a high level as finance director from outside—a rare kind of appointment—in 1988.

Group turnover (£5.8 billion) increased in difficult trading conditions in 1990-1991, as did group operating profit (£634 million). In Continental Europe profits of £20.4 million were recorded on sales of £148.7 million in 1990-1991. All the French and Belgian stores operating by this time were profitable, and a new store opened in Madrid in March 1991. The five stores Marks and Spencer had opened in Hong Kong from 1988 onwards also performed well in 1990-1991. Due mainly to the recession in the United States, operations were not so smooth for the group’s recent acquisitions there, which included the American clothing business Brooks Brothers Inc. and Kings Super Markets Inc., both acquired in 1988-1989, although these two companies were able to show a profit by the end of the financial year. There were business losses in Canada and a senior board of Marks and Spencer directors was given the task of resolving the situation there. Marks and Spencer’s flagship store in Continental Europe is in Paris, which was the scene of the great 19th-century department stores at the time when Michael Marks set up his market stall in Leeds.

Principal Subsidiaries

Marks and Spencer (Nederland) BV; Marks and Spencer (France) SA; Marks and Spencer (Ireland) Limited; M&S Export (Ireland) Limited; SA Marks and Spencer (Belgium) NV; M&S (Spain) SA; Marks and Spencer (España) SA (67%); Marks & Spencer Holdings Canada Inc.; Marks & Spencer Canada Inc.; Marks and Spencer Finance (Nederland) BV; MS Insurance Limited (Guernsey); Marks and Spencer US Holdings Inc.; Brooks Brothers Inc. (U.S.A.); Brooks Brothers (Japan) Limited (51%); Kings Super Markets Inc. (U.S.A.); Marks & Spencer Services Inc. (U.S.A.); Marks & Spencer Finance Inc. (U.S.A.); Marks and Spencer Retail Financial Services Holdings Limited; Marks and Spencer Unit Trust Management Limited; St Michael Finance Limited; Marks and Spencer Property Holdings Limited; Marks and Spencer Property Developments Limited; Marks and Spencer Finance pic; Marks and Spencer Export Corporation Limited.