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An Internal and External analysis of NEXT PLC
To find the successes, growth and profit of a company in the previous years and also to determine what their future will be in the coming years one need to see what opportunities lies ahead.
NEXT is the UK’s second-largest clothing retailer after M&S, and targets the midmarket 25-44s. (Mintel, 2009) NEXT is a specialty retailer of apparels, footwear, related accessories and home products. The company is engaged in retailing, home shopping and customer services management. (Global Markets Direct, 2009)
This report is based on the analysis done on the micro and macro environment of the company. The results found are presented using SWOT analysis; Generic Strategies (Differentiation, Focus, Cost Leadership) and Mix Map Model (Analysis of 4Ps and PLC, BGM, Ansoffs), to determine the strengths and weaknesses, as well as opportunities and threats of NEXT plc. The analysis is also done by PEST (Economic, Political, Technological and Social) and also an analysis using the Porter’s five forces, focusing on the current environment of the company.
The information gathered in the research is used to construct an executive summary which will provide the company’s vision and give them a sense of where they are heading to. The whole of the analysis mentioned above were done so as to analyse the current situation of NEXT plc and also find more opportunities for future strategies in other to enhance growth.
A mission Statement is a short, succinct statement declaring what business you’re in and who your customer is. By offering such focus, it provides direction for future corporate development. (Birnbaum associates, 2009)
Birnbaum stated that it is important to include two dimensions in Mission Statement, the first dimension will be an inside-out description of what you do, describing the product or service you supply, and the activities you perform inside the walls of your company and the second dimension of that statement is the “Who buys it, and why?”, the market sided point of view.
NEXT MISSION STATEMENT
The company’s objective is to offer quality fashionable clothing, accessories and furnishings for a good price. NEXT mission is to be the natural choice retailer in the UK for fashion aware men and women who expect style, distinction and quality from their clothing. (Hoover 2009)
The aim of NEXT is to meet or exceed customers’ expectations of NEXT products and of NEXT as a company by providing:
Exciting, beautifully designed, excellent quality clothing and home ware that reflects the aspirations and means of their customers
As well as delivering to their Brand values, NEXT is committed to ensuring that no-one should be harmed when their products are being made or whilst they are being used as they focus on;
- the quality of products
- safety and fit for intended purpose
- products being fully comply with all legislation and their own standards where these go beyond legislation requirements
- products and their raw materials are sourced in a responsible manner encouraging customers to consider reducing their impact on the environment by offering information about lowering the temperature they use for washing clothes and how to dispose of products correctly(Next, 2009)
NEXT is committed to operating a responsible and successful business, aiming to provide an inclusive high level of service to all their customers, shareholders, employees, suppliers, community and the environment at large. (Next, 2009)
NEXT amongst other fashion retailers has suffered sales decline due to the recession. (Scribd, 2009)However, they aim to carefully manage costs, whilst maintaining and retaining talent and skills to ensure a positive position within market and emerge stronger than before. NEXT believe in the importance of maintaining healthy relationship with communities in which they operate as well as work with charities to ensure their part in public welfare. (Next, 2009)
According to Bohdanowicz and Clamp (1994), the main difficulty in dealing with the complex world of fashion marketing is the issue of change because fashion, by its very nature is constantly changing and there is a further dimension of constant change in the business environment. NEXT has emerged from a difficult year in good financial health, with solid net margins, a robust balance sheet, strong positive cash flow and secure financing. (Next financial report, 2009) This is due to their marketing strategy as they make efforts to find out what customers wanted and tried to give it to them, because, the satisfaction of customers’ needs, wants and demands lies at the heart of the marketing concept, which is the strategy that enables an organisation to achieve its objective.
Johnson and Scholes (Exploring Corporate Strategy) define strategy as thedirection andscope of an organisation over thelong-term: which achievesadvantage for the organisation through its configuration ofresources within a challengingenvironment, to meet the needs ofmarkets and to fulfilstakeholder expectation. This is all about the direction of the business in the long-term, the markets a business will compete in and the kind of activities involved in such markets, how the business will perform better than the competition in those markets, the external, environmental factors affecting the businesses’ ability to compete and the values and expectations of those who have power in and around the business. (ivythesis, 2009)
Situational analysis is an examination of both the internal factors (company strategies and position in relation to its competitors) that helps to identify strengths and weaknesses and the external factors (presented by the external environment) that helps to identify opportunities and threats of a company’s success in sales and profits. Structure, culture and core competencies will be used to identify the internal factors while micro-porter’s 5 forces and macro-PESTE will be used to identify the external factors of NEXT. SWOT Analysis is a strategic planning method used to evaluate a firm’s strengths, weaknesses, opportunities and threats involved in a business venture. To perform a SWOT analysis, the organisation need to carefully and critically examine various internal and external factors which are often unique to an organisation depending on the type of business. After performing a SWOT analysis, the managers will be able to formulate a strategic plan which comprises of objectives and subsequent strategies.
The success of an organisation in today’s competitive world depends largely on the extent of strategy formulation and implementation
Internal strengths and internal weakness are the organisation’s controllable activities that are performed especially well or poorly. They arise in the management, marketing, finance/accounting, production/operation, research and development and computer information systems activities of a business. (Scrib, 2009)
NEXT COMPANY STRUCTURE
NEXT is positioned firmly in the middle mainstream fashion market, targeting 25-45 year olds who are fashion followers. (Next, 2009) NEXT company logo is ‘next’ in lower case which was updated in 2007/08 (Verdict, 2009)
NEXT is one of the leading UK clothing retailers offering stylish, good quality products in clothing, footwear, accessories and home products through three main channels of distribution;
- NEXT Retail- a chain of more than 500 stores in the UK and Eire
- NEXT Directory- a direct mail catalogue and transactional website with more than 2 million active customers
- NEXT International, with more than 170 stores overseas. (Next, 2009)
Other businesses in the Next group include:
- NEXT Sourcing, which designs, sources and buys Next branded products; and
- Ventura, which provides customer services management to clients wishing to outsource their customer contact administration and fulfilment activities (Next, 2009)
NEXT make use of standalone Lime stores in other to capitalise further on its existing product line and take a bigger slice of the large, growing UK value clothing market. (Verdict, 2009)
NEXT stores are specious to help in boosting customer shopping convenience, their 30,000 sq ft. refurbished store at Bluewater shopping centre and more others stores were tiled in place of wooden flooring, new centre-floor equipment were installed, wood veneer panels with a wave effect were incorporated as part of the perimeter, lighting levels were also lifted and mannequins were introduced. (Verdict, 2009)
NEXT COMPANY CULTURE
According to Blackwell, Miniard and Engel(2001, p. 314), ‘’Culture refers to a set of values, ideas, artefacts, and other meaningful symbols that help individuals communicate, interpret, and evaluate as members of society”. (Vignali et al, 2008, p. 285)
Culture is the accumulation of shared meanings, rituals, norms and traditions among the members of an organisation or society. (Solomon et al, 2009, p. 41)
TYPES OF CULTURE
There are four types of culture, Power, Role, Task and Personal culture. NEXT plc have the principal Board of committees which includes Audit Committee, Remuneration Committee, and Nomination Committeeeach of the committees with their own works in the company. (Next, 2009) This shows that they operate with Role culture where decisions are made by committees, structures, logic and analysis.
APPENDIX 2: THE CULTURAL WEB
Stories – These are past events and people’s talk about inside and outside the company. (mindtools, 2009)
Rituals & Routines – Daily behaviour and actions of people that signal acceptable behaviour. (mindtools, 2009)
Symbols – Theseare visual representations of the company including logos. (mindtools, 2009)
Organizational Structure – This includes both the structure defined by the organization chart, and the unwritten lines of power and influence. (mindtools, 2009)
Control Systems- The ways that the organization is controlled. (mindtools, 2009)
Power Structures- These are the pockets of real power in the company formal lines of authority. (mindtools, 2009)
APPENDIX 3: NEXT CULTURAL WEB
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. (tutor2u, 2009)
Core competencies: NEXT make use of an Internet based home shopping and has also established a good brand posture with individual style, beautiful design, excellent quality and affordable price. (Next, 2009) NEXT stores are specious and they also make use of standalone lime stores.
The External environment consists of opportunities and threats that are outside the organisation and are two types;
Task environment (micro): are factors that affects the organisation and affect itself by the organisation and these are shareholders, community, labour unions, creditors, customers, competitors and trade associated.
Social environment (macro): includes those forces that do not affect the short run activities but influence the long run activities or decisions of the organisation. They are governmental, political and legal, economic, social, cultural, demographic and environmental, and technological forces. (Scrib, 2009)
MICRO – PORTER’S FIVE FORCES
APPENDIX 4: Details of Forces affecting NEXT Market
Source: Porter, M.E. (1980)Competitive Strategy, Techniques for Analysing Industries and Competitors, Free Press
From the above Porter’s Five forces model, I can conclude that;
- Because there are a lot of suppliers, their influence over the company is limited. A supplier could easily be replace in a short period of time if he asks for an increase in his price, or make other better requests.
- The only way to attract customers to buy a company′s product rather than the competitors’ is to add value, like label, style, price or quality to products since clothing is not very item specific. However, the customer spends his money and so has the most power to make the management cut prices to avoid losing sales, but from quality perspective, NEXT stands out.
- New competitors entering the market is a big threat to NEXT especially the big label companies because they can enter the clothing market in a short period of time as they have capital, knowledge and the power to do so. However, there is a place for NEXT, considering the brand posture.
- Substitution is a threat but it is not a big issue in the clothing retail market so for NEXT, the impact of substitute is limited since they offers almost all the brands.
- Because there are a lot of clothing retailers in the UK which indicates a high rivalry between competitors. Consumers prefer companies with the best offer in respect to price, quality and services and so companies must cut prices to sell their products. NEXT however has maintained trading at full price at all times, other than the traditional end of season and mid-season Sales and so might be at risk, but since they have maintained good quality and services, rivalry for them is very low and will not be a big issue.
MACRO – PEST ANALYSIS
- Political: The United Kingdom, is a Member State of the European Union and fulfils stable political surrounding which is the basis for long-term decisions upon which the government has to act to achieve certain conditions. This has given NEXT PLC a higher scope of economic actions. (Grin, 2009)
- Economic: The current economic climate in the UK is unstable and this brings short term volatility in NEXT sales which, in turn, make forecasting difficult. In addition, the weakness of Sterling against the US Dollar and the Euro, the main purchasing currencies, has brought further challenges to their buying teams. (Next financial statement, 2009)
- Social: presently, the UK population is high and this means a lot of customers for NEXT Plc. On the other hand, sex education and rise in population of career women have brought about drop in birth rate and so figures of NEXT target group of 25 to 45 are declining.
- Technological: Internet has given NEXT a lot of potential opportunities to boost profits as customers can easily acquire clothing online without having to leave the comfort of their homes.
1. Performance in recent years. (Retail-week, 2009)
2. Next Directory sales. (Next and Verdict, 2009)
3. Powerful design philosophy. (Next, 2009)
4. Advertising and marketing (mintel, 2009)
1. Optimize store space. (Verdict, 2009)
2. Consolidate internet marketing and buying. (verdict, 2009)
3. Expansion into new markets. (Verdict, 2009)
2. Profit margin declined than previous years.(Verdict, 2009)
3. More formal wear than average.
1. Marks and Spencers biggest competition.(Verdict, 2009)
2. Arcadia and Primark trying to overtake. (Verdict, 2009)
3. Target market reduced.
In the previous years, NEXT has been performing very well, however, sales were down 1.3% in the 12 weeks to October 31. Total retail sales were ahead 3.1% and Next Directory sales climbed 5.1%. Next upgraded its sales guidance for the second half and said if it met its revised expectations its full-year profits would increase 30% on last year to about £472m. (Retail-week, 2009)
APPENDIX 5: NEXT Company Performance
Pre tax profits (£m)
NEXT’s catalogue/e-commerce arm, the NEXT Directory, is one of the largest home shopping operations in the clothing market. However, other competitors have also adopted this channel because it is highly profitable. (verdict, 2009)
NEXT has also established a good brand posture with individual style, beautiful design, excellent quality and value. NEXT offers only own brands in their stores except their brand which is seen as top quality for an affordable price by their customers. (verdict, 2009)
Advertising and marketing
Next has historically steered clear of significant brand marketing activities. However, as part of revitalising the brand, the 2007/08 budget was ramped up (by an extra £16 million) to include more press, billboard and window advertising as well as two television campaigns. The spending was maintained in 2008/09, when Australian pop star Dannii Minogue starred in the autumn television campaign, and into 2009/10, when the summer campaign featured Nathan Bogle and Brazilian model Emanuela de Paula. (Mintel, 2009)
Due to the expensive pound, continental customers will prefer mainland stores such as H&M. Besides, although there are still profits in Sales in overseas stores, there are chances that when reviewing the change throughout the year, there will be a decline in turnover.
APPENDIX 6: Next international turnover
Turnover Excluding Tax
Revenue excluding VAT
Profit and Earnings per share
Source: Next Financial Report, 2009
Consumer’s preference: Large shops
Mintel found out in the recent enquiries that most people especially men prefer shopping in large shops that offers different types and makes of clothing. They prefer to purchase clothing in one shop that has it all than to walk from one shop to another. (Mintel, 2009)
The sales of online shopping are almost increasing every year as people now prefers to shop from the comfort of their homes. (verdict, 2009)
Expand Into new Target Group
There is an opportunity for NEXT to expand into a new target group considering the decreasing population of targeted age group. This will reduce the dangers of sales decline and give NEXT an extra profit from the new target group.
Over Crowded Market
There is a place for NEXT in the clothing retail markets but not without competition. Costs rise and profit falls because even as the market is overcrowded, new entrants are coming in.
Decreasing Population of Target Group
NEXT target age group which is 25-45 is moving out because new trends of smaller families are now dominating the baby makers of the fifties who are almost at pension age and as aresult of this, sales in the next 10 years may be reduced.
NEXT intends to continue trading at full price at all times, other than the traditional end of season and mid-season Sales, this can hurt business seriously because if customers get used to discounts, they will not want to spend more on products in future thereby causing death for the market. (Mintel, 2009)
Despite the current overcrowded market, more fashion retailers still make entry. A company with a lot of capital and experience and can create economies with its brand and differentiated product, will create interest if entered the market.
Next, which competes against Marks & Spencer, Debenhams and John Lewis Partnership, added that, while customers continue to manage their credit carefully, it has started to see a year-on-year reduction in arrears on their Next Directory accounts. (advfn, 2009)
According to Hines and Bruce (2002), Porter (1996) maintains that strategic advantages can only be achieved through performing different activities from rivals or performing the same activities, but in different way, that it is through the adoption of a generic strategy, weather differentiated or low cost, or in the case of Matalan a combination of both, offering high fashion at low prices (Jones et al, 2000), each organization determines the means by which it intends to successfully meet strategic challenges.
Porter’s Generic Competitive Strategies (ways of competing)
A firm’s relative position within its industry determines whether a firm’s profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. (Ifm, 2009)
APPENDIX 7: Generic strategy
From the Porters 5 forces analysis done on NEXT (Appendix 4), we have come to a conclusion that NEXT operate on a Differentiation Strategy approach since the five forces are all positive.
Differentiation involves making your products or services different from and more attractive those of your competitors. However, this depends on the exact nature of the industry and of the products and services themselves, but will typically involve features, functionality, durability, support and also brand image that the customers value. The company must possess good research, development and innovation, ability to deliver high-quality products or services, and effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings. (mindtools, 2009)
MIX MAP MODEL
Boston consulting box
The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company’s strengths and helps exploit the most attractive opportunities. (tutor2u, 2009)
Methods of Portfolio Planning
The two best-known portfolio planning methods are from the Boston Consulting Group and by General Electric/Shell. In each method, the first step is to identify the various Strategic Business Units (“SBU’s”) in a company portfolio. An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands – it all depends on how the company is organised. (tutor2u, 2009)
APPENDIX 8: The Boston Consulting Group Box (“BCG Box”)
Using the BCG Box (an example is illustrated above) a company classifies all its SBU’s according to two dimensions:
On the horizontal axis: relative market share – this serves as a measure of SBU strength in the market
On the vertical axis: market growth rate – this provides a measure of market attractiveness
By dividing the matrix into four areas, four types of SBU can be distinguished: stars, cash cows, question marks and dogs. (tutor2u, 2009)
ANALYSIS OF 4Ps AND PLC, BGM, ANSOFFS
- Position of product life cycle: NEXT have been much happier with the positioning and fashion content of product ranges and in particular the improvements to the women’s ranges. (Next financial statement, 2009)
- Product life cycle is very important as NEXT anticipated a difficult year and set key objectives and continue to invest in their Brand. (Next financial statement, 2009)
- The growth rate of NEXT in the UK market is increasing; NEXT looks to be moving from a clothing retailer to a lifestyle brand incorporating a home goods offer not just online, but also in its stores, although not without competition. (Mintel, 2009)
- To NEXT, growth rate is very important and so they have expanded so much since established in 1864, in addition to stores and a home shopping operation in the UK and Ireland, the group’s franchise arm has nearly 200 partner stores overseas. (Mintel, 2009)
- The market share of NEXT: Next shares were up 103 pence or 5.69% at 1913 pence in November, 2009. They’ve risen 67% year-to-date amid hopes of improving trading conditions. (advfn, 2009)
APPENDIX 9: Next Plc Historical stock chart
- The market share of NEXT is not as important as they concentrate more on the design, quality and value of product, together with excellent customer service and delivery. (Next financial statement, 2009) In March 2009, the market seems to fall even more due to global recession (index falling from 83.178 to 73.96 pounds whereas NEXT growing from 101.108 to 111.089 pounds), showing that its prices are not determined by the market trends but its set according to the value. (scribd, 2009)
- The percentage of new market: Directory sales–its catalogue-shopping and online business–were up 5.1% in the third quarter. Combined total brand sales for Next retail and its directory business were up 3.1% in the period. (advfn, 2009)
- For NEXT, new market is extremely important as they have begun placing orders later and keeping more spending back for shorter lead-time garments in order to keep pace with fast-changing fashion trends. (advfn, 2009)
- Percentage of new product: NEXT increased the levels of newness within their ranges so that there were more new products for customers to see every six weeks. This change has been partly as a result of selecting product closer to season, boosting new trends with conviction. (Next regulatory news, 2008)
- Percentage of new products is very important to NEXT; Fashion trends are changing all the time, and trends are getting into the stores quicker, introducing new product every season to meet up with consumer demand. (advfn, 2009)
- Quality, Style/Design: to NEXT, these are very important and strong as we can see from the company mission statement. (NEXT, 2009)
- Position and importance of decoration and location; updating of shop fit is an integral part of revitalising the Brand. The aim is that NEXT merchandise is displayed in stores whose interior design reflects the design and quality of the clothing and homeware. (Next regulatory news, 2008)
- Position and importance of stocks: NEXT Stock for the end of season Sales across Retail and Directory was down 10% as a result of realistic budgets and much improved stock control. (Next financial statement, 2009)
- Price level and value of NEXT: Next maintained its long standing practice of providing customers with certainty over pricing and was one of the few retailers not to mark stock down in the run up to Christmas. Whilst they recognise that this will have reduced sales potential during this period, it allowed them to maintain margins and significantly reduce markdown costs year on year. (Next financial statement, 2009)
- Price level and value is very important to NEXT as their strategy is to concentrate on design, quality and value of product together with excellent customer service and delivery believing it will serve them through recessionary period. (scribd, 2009)
- Financial report shows direct selling is very important and NEXT are well covered by it because although they have difficulties through the recession, they still made profit. (Next financial statement, 2009)
- To NEXT, use of billboard and TV advert is important and they are covered well with it because In order to communicate the changes made to product ranges they have increased both the effort and investment made in marketing the Next Brand. They have improved the quality of in-store displays, graphics and windows. In total, spent an additional £16m on marketing in the year, most of this increase went into press, billboard and TV advertising and windows (Next regulatory news, 2008)
NEXT REAL POSITION
The above analysis shows that at this time, NEXT’s real position is in sector 2 which is Stars. Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. Often they need heavy investment to sustain their growth. Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows. (tutor2u, 2009)
Analysis shows that in other to gain a strong real position NEXT should still increase Billboard and TV advert for at least 2%. This will help NEXT improve and develop product ranges, and maintain success and sales performance. They should create more awareness to increase the number of customers shopping from home with the Next Directory and also enhance the internet functionality to improve the directory sales. NEXT should improve their core competencies by introducing the 3-D body scanner for more accurate sizing and also make sure that as they advertise their adult fashion wear which is their main target group, they should also advertise the kids to improve sales.
NEXT should improve more on their gross and net margins by better sourcing, cost control and efficient Stock management. NEXT should Purchase shares with earnings that will enhance the interest of shareholders in general. They should maintain financial strength and equally try
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