Marks and Spencer 2011 Annual Report Download - page 48

Risk description Mitigating activities
Finance Our priorities continue to focus on maintaining a strong financial position that supports continuous improvements
to our customer offering across our UK and International operations.
Economic outlook
Uncertain economic conditions impact consumer confidence
and our ability to achieve our sales forecast
As consumers’ disposable incomes come under pressure from
increased VAT rates, cuts in public spending and increased fuel
prices, trading conditions continue to remain a challenge for our
UK business.
– Throughout the year we have continued to review and monitor the
effectiveness of our pricing, promotional and marketing strategies
across our General Merchandise (GM) and Food businesses,
tailoringour consumer offering where appropriate.
– Despite pressures on our cost base, we have continued to
innovateinorder to retain our point of difference and the loyalty
ofourcustomerbase.
Product costs
Increasing product costs may impact the profitability of our business
Our GM and Food businesses are having to develop plans to
address rising commodity prices, particularly inthe cost of oil, food
and cotton, as well as general inflationary pressures on our supply
base such as labour cost increases in Bangladesh and China.
– Where possible, we are leveraging the scale of our GM business
toabsorb cost price inflation without passing on significant price
increases to customers.
– Both the GM and Food businesses are working with suppliers on
anongoing basis to increase efficiencies and to identify opportunities
for taking costs out of their supply base to protect margins and
profitability, without compromising on quality or diluting the
emphasiswe place on innovation.
Financial position
Deterioration in our financial position limits our flexibility and ability
to grow the business
In the event that the Group’s financial performance does not meet
market expectations, our ability to borrow from lenders on our
existing terms may be impacted, resulting in increases to the cost
of borrowing and insufficient funding to meet our capital
requirements and growth plans.
– Group Treasury regularly carries out forecasting of our debt
capacity,financial covenants and other rating metrics within
currentrating bands.
– The funding level of our pension scheme is monitored in collaboration
with the Trustees on a regular basis, with clear parameters in place
thatwould trigger an intra-valuation debate between the Trustees
andthe Company.
– Regular communication with rating agencies and brokers has
continued throughout the year.
Selling channels We have ambitious plans for our UK, International and M&S Direct businesses as part of our commitment
to becoming an international multi-channel retailer by 2015.
Store environment
Failure to deliver improvements across our store estate to time,
tobudget or to the desired quality could negatively impact
consumer perception of the M&S brand
Customer research has highlighted that some of our stores are
difficult to shop and the positioning of our clothing sub-brands is
unclear. We have taken this feedback on board and are investing
in delivering improvements to strengthen and clarify our brand.
– To ensure that our new store plans meet our customers’ needs with
minimal disruption to their shopping experience, we plan to introduce
aphased roll-out of improvements across our store estate.
– Close monitoring of progress against key milestones is underway,
withdirect reporting lines into the Executive Board.
Food competition
Aggressive expansion of our competitors into M&S markets could
impact our market share
The major supermarkets have outlined significant expansion
plans over the next three to five years. This is leading to greater
competition for the acquisition of sites and has heightened the
need for us to improve accessibility of our stores and differentiate
our product offering.
– We have a clear space growth plan in place for 2011/12 and beyond to
reduce the drive time to our stores for our customers.
– We continue to implement targeted marketing and promotional
strategies in response to competitor openings.
– To maintain our position as a leading specialist food retailer, our 2011/12
Food strategy will focus on innovation and inspiration, underpinned by
our three core values, ‘Freshness, Speciality and Convenience’.
M&S Direct
A new online platform with flexibility to support future growth is
not delivered by the time our contract with Amazon expires
In November 2010, we announced our desire to become a
leading UK multi-channel retailer and to make our brand more
accessible around the world. To achieve this, we are investing in a
new online platform that will not only provide a more enhanced
shopping experience but also help to accelerate our growth.
– Laura Wade-Gery, our new Executive Director of Multi-channel
E-commerce brings with her a wealth of experience in multi-channel
retailing.
– Our multi-channel growth strategy is underpinned by a clear plan for
implementation of the new platform both in the UK and overseas.
– We are working closely with our partner Amazon to ensure the quality
of our existing online offering is not compromised while we build the
new platform.
International
Failure to leverage our systems and processes limits growth of
our international business
Our aim is to increase our international presence and to build a
leadership position in priority markets. To deliver this, it is crucial
that we adopt an organisation structure that is supported with
robust systems and supply chain capability.
– The appointment of Jan Heere as Director of International will drive the
achievement of our international growth plans.
– The focus on enhancing international systems and processes has
continued throughout the year in alignment with the development of
our international strategy.
Marks and Spencer Group plc Annual report and financial statements 2011
46
Governance report
"DDPVOUBCJMJUZ
continued