There are risks and uncertainties which could impact the Group’s long-term performance. The risk assessment process is designed to identify, manage and mitigate business risk. The table below gives examples of activities across Group functions to mitigate against risks and uncertainties identified. The Board considers that these are the most significant risks to achieving business goals. The risks listed do not comprise all those associated with Marks & Spencer and are not set out in any order of priority. Additional risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business.
| Risk |
Impact |
Examples of mitigating activities |
Economic downturn
Our current priorities place a greater emphasis on managing our business through the downturn, underpinning our strong financial position and continuing to invest for the long term, to be well placed when the market improves. |
Strategy
We fail to set the strategic direction to balance short-term and long-term profitability |
Adverse effect on financial results |
– Short-term priorities announced in November 2008
– Significant cost saving initiatives announced in January 2009
– Increased Board discussion concerning strategy with dedicated away-days in 2009 |
Finance
We fail to protect brand and profitable revenues whilst driving cost savings |
Adverse effect on financial performance and brand reputation
|
– Regular monitoring of key brand/profit indicators
– Regular monitoring of key service and compliance measures to ensure operating standards in our stores are maintained |
| We fail to react to changes in foreign currency exchange or inflation rates |
Adverse effect on operating costs or accounting impact on operations |
– Progressive hedging policy
– Close liaison with suppliers to mitigate adverse currency impact
– Continued drive of economies of scale |
| We fail to maintain cost efficient funding |
Increased costs and tighter conditions
Adverse effect on business and financial results |
– Ongoing tight cash flow, working capital and cost management
– Tight stock management
– Quarterly cash forecasting and tight management of payment terms
– Tight control of capital expenditure
– Proactive engagement with funding providers and credit agencies
– Development of suite of future funding options if and when necessary |
| We fail to respond to/recover from key counterparty failure |
Disruption to supply chain resulting in financial loss
Adverse effect on financial performance and brand reputation |
– Open and frequent dialogue with our key suppliers on their ability to continue to trade |
| We fail to react to changes in pension funding requirements |
Adverse effect on financial condition |
– Continuing dialogue with Trustee to identify appropriate long-term funding solutions |
People
As we continue to grow our business and invest for the future, it’s important we keep strengthening our team at every level from the shop floor to the boardroom. |
| We fail to attract, develop and retain talent with the correct skills to succeed into senior positions |
Inability to develop and execute business plans
Competitive disadvantage |
– Increased responsibilities for the executive team to support succession plans and appointment of separate Chairman and CEO by July 2011
– New ‘Lead to Succeed’ leadership programme to develop and fast track current and potential leaders for tomorrow
– Bonus plans linked to individual performance being introduced in 2009/10 |
| We fail to retain the confidence and motivation of our employees |
Poor employee morale |
– Improved communication at all levels to keep employees engaged and motivated
– Tracking of employee satisfaction surveys and resulting actions
– Tracking of customer perceptions of service and resulting actions |
Product
We are the UK’s leading retailer of high quality, great value clothing, food and home products, which are all sourced and made responsibly. |
Clothing
We fail to maintain clothing market share
We fail to maintain appropriate inventory levels
We fail to respond to market trends and consumer preferences |
Adverse effect on financial results
Adverse effect on market share and customer loyalty |
– Better segmentation of our offer across Clothing
– Improved cataloguing by demographic and customer profiling
– More excitement and newness
– Tight management of terminal stocks and slower moving lines
– Better management of ways and choice
– Strong price architecture – driving Good, Better and Best
– Increased efficiencies across our supply chain: better sourcing, faster to market, economies of scale on fabric
– Continual review of customer feedback via Customer Insight Unit
– Plan A initiatives, eg ethical sourcing |
Food
We fail to strike the right balance between delivering short-term profit and protecting longer term business growth
We fail to halt the decline in market share
We fail to maintain product standards |
Adverse effect on financial results
Adverse effect on market share and customer loyalty
Adverse effect on brand reputation |
– Continued investment to improve value perceptions with customers without compromising quality
– Improved promotional stance and execution
– Good pipeline of innovation to maintain our market differentiaion
– Focus on improved availability and waste
– Continual review of customer feedback via Customer Insight Unit
– Plan A initiatives, eg differentiated raw materials |
Selling channels
We have ambitious plans for our M&S Direct and International businesses as part of our commitment to broadening our multi-channel offer. |
M&S Direct
We fail to meet customer expectations when they buy online |
Adverse effect on financial results
Adverse effect on market share and customer loyalty |
– Clear multi-channel strategy (including in-store collection) leveraging our online proposition with our well established retail footprint and marketing activities
– Programme to refresh website ‘look and feel’ and functionality
– Focus on improved order fulfilment and customer service
– Extended product ranges and customer base |
International
We fail to grow our international business through franchise operations, partnerships and wholly-owned businesses |
Adverse effect on financial results
Adverse effect on brand reputation |
– Further business development with our partners in India and Central and Eastern Europe
– Ongoing review of new markets
– Continued growth of our franchise business
– New systems/processes to support international trade |
Reputation
We are proud of our brand values of Quality, Value, Service, Innovation and Trust which differentiate our products and services. We all have a responsibility to protect the Company’s reputation in everything we do. |
Plan A
We fail to maintain momentum for Plan A in the face of current trading priorities and cost efficiencies
Our suppliers fail to meet our ethical standards |
Adverse effect on stakeholder trust
and confidence
Adverse effect on brand reputation
Adverse effect on financial performance |
– Governance in place to achieve our commitments, including Director of Plan A and clear accountabilities within executive team
– Performance reporting developed and increased assurance delivered
– Plan A integrated into day-to-day operation including Plan A champions throughout head office and stores
– Open dialogue with stakeholders developing our mutual understanding of the challenges we face
– Monitoring of our Global Sourcing Standards |
Business interruption
We fail to recover from a major incident (eg pandemic flu, terrorism, key system failure) which severely impacts our ability to trade
|
Adverse effect
on financial results
Adverse effect on stakeholder trust
and confidence |
– Introduction of Business Continuity (‘BC’) Committee, as recommended by the Audit Committee, to give greater impetus to existing BC plans to improve our readiness to respond in each business area
– Regular reports to the Fire, Health and Safety (‘FHS’) Committee and to the Board on our FHS performance and culture and increased focus on FHS risks and management KPIs |