Socio Cultural Factors
The Italian market has a very reserved attitude to foreign products especially when it comes to clothing products, particularly due to the fact that their own domestic products are some of the best in the world. This will make it highly difficult for M&S to convince the Italian market. Ninety percent of the Italian people are Roman Catholic with the other ten percent being mainly Jewish and Protestant people and a large number of growing Muslim immigrants. The majority speak Italian with small minorities speaking German, French and Slovene.
Language will be an important factor for M&S and the employees and managers should be well versed in Italian and other native languages existent in the Italian market. (CIA, 2009). The key statistics for the case of M&S are that the ratio of women to men is almost equal, more than sixty five percent of the population lies in the age group of 15 and 64, a life expectance of an estimated 80 years and also the literacy rate which shows that nearly all the Italian people are literate (CIA, 2009).
Also, the Italian people are generally environmentally friendly (Metropolis International Group Ltd, 2008), so this will also help boost the image of M&S because of their own “green” economically friendly activities, which will be mentioned later on in the report. Most of these factors show good signs for M&S. Industry Analysis The industry analysis is performed by using the Porter’s 5 forces framework. The cumulative effect of the 5 forces as a whole can tell us whether the industry is conducive for performing business or entering a new market as is the case with M&S.
The 5 forces are the bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants, the threat of substitute products and the rivalry among competitors. We discuss these five forces one by one in the following paragraphs to analyze the industries in which M&S will be operating in Italy. Bearing in mind that as previously mentioned, M&S operates in multiple industries such as clothing, electronics, home furnishing, entertainment products such as games and DVDs, food and wine category, and gifts and other categories as well, it will be impossible to analyze all these industries here.
So the assumption is that M&S will initially focus on the clothing, house ware and gifts markets. We analyze these industries jointly as follows.
Porter’s 5 Forces Frame work
Bargaining Power of Customers
It is common knowledge that the Italian customers for clothing products are highly brand conscious and prefer better and more elite brands. They are more likely to prefer the more exotic brand labels such as Gucci and Armani to M&S. The Italian customers are more conscious about brands when it comes to clothing. This is perhaps one of the major reasons that to date there is no M&S outlet operating in Italy (Owen, 2001).
M&S will have to either build a bigger and more powerful brand identity or go down stream and focus more on the lower income segments. The per capita income for Italians for the year 2008 is around $ 31,000 which means that even lower income segments will have the ability to afford M&S labels (CIA, 2009). Similarly for household items and also for gift products such as cards and flowers, the number of buyers is substantial. This can be seen by looking at the per capita income which suggests that most Italian customers will be able to afford house ware items.
Bargaining power of suppliers
There are over 2000 suppliers for M&S products on a global level as mentioned earlier in this report. The bargaining power of suppliers is therefore not a huge company such as M&S who are the ones who dictate the terms to the suppliers. Plus, the fact that the growth in the Italian economy has come to a halt in the last few years, it is our belief that the government will support the move that a foreign concern enters the market and provides much needed foreign investment to bolster a weak and staggering economy.
For this to happen, the government might put pressure on domestic suppliers to provide matching rates to the foreign retailer that the suppliers provide to the domestic retailers. This view point holds for all the markets, that is clothing, household items and gifts. For the gift market, the following quote from the CBI Market Survey is sufficient to explain the nature of supplier bargaining power: “Italy’s gifts and decorative articles are distributed through five major channels: importers/distributors, commission agents/sales representatives, department stores, mail-order and Internet sales.
Because Italy has a large number of handicraft manufacturers, department stores prefer to deal directly with manufacturers to save costs” (CBI Market Survey, 2003).
Threat of new entrants
The retail market in Italy is quite enormous with more than seven hundred thousand stores in the year 2001. However, a large proportion of this substantial amount is covered by numerous small and minute single branch stores. Nonetheless, the larger businesses with numerous branches are becoming more powerful and capturing the market that was once the domain of the smaller businesses.
The Italian market is fragmented on a geographical basis on both financial and social fronts. The Northern and Middle portions of the country are more advanced economically and can afford designer labels, whereas the South is more concerned about the price of the products. The threat of new entrants is higher in the Southern section of Italy, where the smaller retailers operate, whereas in the North the larger chains are dominant. M&S might pursue a more conservative strategy by focusing on the Southern section initially or it will have to take the large retailers “head on” if it targets the Northern areas of the country.
Threat of substitutes
This threat is relatively low in the industries that M&S operates in. For example, there are no substitute products for clothing and household furniture. For gifts, the customers may switch if the prices are too high in the industry or the products are not to the liking of the customers. They might use other ways of expressing their feelings rather than using flowers or cards or chocolates. 5) Rivalry among competitors There are numerous fashion related stores in Italy, some of the prominent being Gucci, Prada and Armani.
Prada for example also has its own manufacturing plants to produce textile related products which gives it a low cost advantage. The rivalry is intense in the clothing market in Italy. There are many companies vying for the market share. Plus, brand identity and quality as already mentioned are major factors for most Italian consumers, especially in the North. Also Italy had the highest textile exports in the world in the year 2000, (Owen, 2001) so it shows that M&S will be competing on both domestic and international fronts. On the positive side, it will have a larger market to focus on.
Some of the biggest retailers in the country for household products and gift items are Oviesse with around 200 branches, La Rinascente with 170 and Upim with 150 branches (CBI Market Survey, 2003). There are many others which shows that the rivalry is very intense and M&S will have to use a cost focus strategy or a differentiation strategy to compete in the Italian markets.
• M&S is a very large company with the experience of operating in international markets
• It has enough of a financial base to compete in terms of prices to capture market share and bear losses
• It is a very old company with a very powerful brand image
• The M&S employees have the skills and experience required to perform well in new markets
We could not find many internal weaknesses except one:
• The brand image of M&S products is not as strong as for labels such as Gucci or Armani, which are seen as trendier, which is what the Italian consumers prefer.
• There is no large retail chain in Italy that sells products that are as diverse as for M&S. This will give them an advantage as many customers might want to make their purchases from one place than visit many different stores.
• It will help bolster M&S’s brand identity if they succeed in Italy, especially in Milan which is seen by many as the Fashion Capital of the world.
• Italy is a huge market of over 58 million in 2009 (CIA, 2009).
• The Italian stores might react strongly and join forces to drive out foreign competition like M&S.
• The Italian economy is dwindling and this might force M&S to provide lower prices to compete.
• M&S might be attacked by both discounters in Italy as well as specialty stores such as Gucci and Armani.
Conclusion and Recommendations
M&S is a huge firm that has the fortitude to enter and succeed in the Italian Market. It has tons of experience and the financial strength to take on competition and acquire market share. However, due to the strength of the Italian clothing stores and the retailers providing household items and gifts, who will certainly react strongly to foreign competition, M&S will either have to use a differentiation strategy and provide products and services that are substantially higher in quality and brand image than the Italian brands or use a low cost strategy and focus on the southern section of the market.
M&S should also try and provide all its products in Italy so that it can provide the customers the luxury of making most of their purchases from one outlet rather than making many stopovers and saving the customers valuable time and money.
- CBI Market Survey. (2003). CBI market survey on gifts and decorative articles.
- CBI. CIA. (2009, March 19). Italy. Retrieved March 22, 2009, from The World Fact Book: https://www. cia. gov/library/publications/the-world-factbook/geos/it. html
- EIA. (2003). Italy. Retrieved March 21, 2009, from Country Analysis Briefs: http://www. geni.org/globalenergy/library/national_energy_grid/italy/ItalyCountryAnalysisBrief. shtml
- Intelligence Unit. (2009). Italy Forecast. Retrieved March 22, 2009, from The Economist: http://www. economist. com/countries/Italy/profile. cfm? folder=Profile-Forecast
- Krause-Jackson, F. (2008, May 29). Pope Praises `New Political Climate’ After Italian Elections. Retrieved March 21, 2009, from Bloomberg: http://www. bloomberg. com/apps/news? pid=20601085;sid=aQNyf3L5yDgE;refer=europe
- Marks and Spencer Group Plc. (2008). Your M;S – Annual Reports and Financial Statements 2008. Marks and Spencer.