Analysis to NEXT PLC

Contents

1. Introduction

2. Development of the United Kingdom clothing market

3. Company profile

4. swot-analysis
4.1 Strengths
4.2 Weaknesses
4.3 Opportunities
4.4 Threats

5. PEST-Analysis
5.1 Political
5.2 Economic
5.3 Social
5.4 Technological

6. Competitive Analysis
6.1. threat of new entrants into the industry
6.2. substitute products or services
6.3. Bargaining power of the customers
6.4. Bargaining power of the suppliers
6.5. rivalry among current competitors

7. Mission Statement
7.1 Explanation of Mission Statement

8. Marketing Strategies
8.1 Directory and sports wear as a chance
8.1.1. Directory
8.1.2. Sports wear
8.2 Social rethinking and physical changing
8.3 Adjustment to age-structure

9. Conclusion

10. Appendix
10.1 References
10.2 Bibliography
10.3 Enclosures

1. Introduction

Several years ago, companies didn't realise the power of market and competitor analysis. It was not necessary. They were living in a market where the companies held the power - but this situation has changed dramatically. As a result of increasing numbers of companies and the realisation of power by the customers, the struggling for power has begun. Nowadays, without this analysis it is impossible to survive. The following essay will give a short overview to the United Kingdom clothing market and will show some examples of different important analyses by NEXT PLC, which is based in this market.

2. Development of the United Kingdom clothing market

The United Kingdom clothing market emerged from the recession of the late 1980's around 1992 and has continued to benefit from the resurgence of High Street spending throughout the 1990's. In 1996/1997, the clothing retail market showed signs of being boosted by the continued growth in personal spending, aided most recently by the windfall payments consumers received from the building society conversion (Key Note, 2000). To prevent economic overheating, the United Kingdom government and its major financial institutions are keen to dampen consumer spending. This has already occurred with the Bank of England's decision to raise interest rates.

The growth, expansion, and diversification of outlets both in the chain and independent sector at the high-, mid-, and low end of the market were also important factors in the development of the United Kingdom clothing market. Furthermore the retailers started to sell their products via mail-order catalogues. This has been joined by the arrival of television and Internet-based clothing outlets. There are in excess of 25,000 clothes retailing businesses in the United Kingdom, with a combined outlet total of 45,500 outlets (Key Note, 2000).

History of Next PLC:

1981 NEXT is formed when J. Hepworth & Son Gentleman's Tailors (a dowdy men's clothing chain established in Leeds in 1864 and taken public in 1948) buys Kendalls, an equally conservative 78-store women's clothing chain. Terence Conran, head of J. Hepworth (later chairman of retail group Storehouse), hires colorful retailer George Davies to reinvent the chain. Davies devises the concept of providing designer-type clothing at mainstream prices 1982 George Davis launches the Next Womenswear chain trading out of 70 stores.

1984 Launch of NEXT for Men - by the end of the Autumn/Winter season there are 52 shops. Opening of the first mini-department store in Edinburgh incorporating Womenswear, Menswear, Shoes, and a Café.

1985 J. Hepworth buys retailer Lord John and officially changes its name to NEXT. Launch of NEXT Interiors range of household furnishings. NEXT for Men now retails from 130 shops. First complete store with all product lines opens in Regent Street, London.

1986 Parent Company J. Hepworth & Son changes its name to NEXT Plc. Merger with Grattan Plc (mail order company). The company has grown to 750 stores, each with a narrow focus.

1987 Launch of NEXT Childrenswear.

1988 Launch of NEXT Directory - home shopping. The NEXT Directory wins the Gold Award in the Royal Mail Direct Marketing Awards for the most outstanding consumer campaign for 1988. Davies is replaced by David Jones as Chief Executive for NEXT Plc.

1990 Lord Wolfson of Sunningdale becomes Chairman of NEXT Plc.

1991 Jones closes unprofitable Next stores, sells manufacturing facilities, and reduces staff. Sale of Grattan to Otto Versand.

1992 The company reduces its store count to 312.

1993 NEXT announces brand-strengthening strategy of "One Brand, Two Ways of Shopping," bringing together the common ranges across both retail and home shopping formats. Branching out geographically NEXT opens its first U.S. location in Boston and its first franchises in the Middle and Far East.

1995 Successful re-launch of NEXT Interiors. Awards include Prima High Street Retailer of the Year, Menswear/FHM Retailer of the Year, and Cosmopolitan Best High Street Shop.

1996 NEXT wins High Street retailing awards from Prima magazine and FHM for the second year.

1998 NEXT trips in 1998 when it orders clothing too trendy and pricey for its customers while under ordering the more basic and popular items. (The ever-practical Jones describes the problem as "too much fashion and not enough classics.") The company alters its product selection and ordering process. Also in 1998 NEXT sells its seven lacklustre company-owned stores abroad (five in the US, one in France, and one in Belgium). Sir Brian Pitman appointed as Chairman. Prima High Street Retailer of the Year. Retail Week Retailer of the Decade.

1999 Prima High Street Retailer of the Year. NEXT launches On-line Ordering and TV interactive shopping.

2000 NEXT Directory wins House Beautiful magazine's Mail Order Master Award, as well as FHM/Menswear magazine's Multiple Retailer of the Year Award.

3. Company profile

When the decision of a company name was being debated, Mr. Davies argued that NEXT sounded forward-looking (www.next.co.uk, 2000). Nowadays, NEXT PLC employs over 28,000 people and operates 330 stores in the United Kingdom and Ireland, as well as 35 stores in Asia, Continental Europe, the Middle East. This makes it one of the biggest High Street retailers in the United Kingdom, which additionally offers home shopping and financial services (www.hoovers.co.uk, 2000). NEXT PLC has five strategic divisions:

Abbildung in dieser Leseprobe nicht enthalten

1. NEXT Retail operates the high street shops;
2. NEXT Directory is the mail order division;
3. NEXT Overseas operates international retail outlets;
4. Ventura runs the financial services division and
5. Other activities include telecommunication software services and property management.

The core is the clothing market for stylish men and women between 20 and 40 years of age. Menswear, womenswear, childrenswear and babywear is part ot the expansion into all the sectors of the clothing market under the NEXT brand label (NEXT Annual Report, 2000).

The company has further extended its product range into home furnishings, bridal wear and personal finance. NEXT has 20 franchised outlets overseas in addition to its international wholly owned subsidiaries. Despite an ongoing programme of expansion over the last five years, the company has continued to increase profits and has been forced to close only four outlets due to poor performance (Key Note, 2000). Now NEXT is expanding its selling space...

Abbildung in dieser Leseprobe nicht enthalten

The above chart shows a progressive increase of 84.2% during the years 1996 through 2000. This followed brand-strengthening strategies and a new perspective in overseas development.

4. Strengths, Weaknesses, Opportunities and Threats (SWOT-Analysis)

4.1 Strengths

The NEXT Brand is targeted at the top end of the mass market. Its well-established strengths are individual STYLE, good QUALITY and VALUE for money (NEXT Annual Report, 2000). The key for this success is that NEXT designs its own products and sells them under its own label. As one of the largest retailers, they use their extensive market overview to recognise changes in customer wishes and behaviours. Creating products under its own label allows NEXT to adapt quickly to changing market conditions. This procures NEXT PLC an invaluable advantage - saving time. The fashion industry is one of the fastest-moving markets. Adaptability, and therefore time-saving, is essential in a market where time decides between success and defeat.

4.2 Weaknesses

Unfortunately, regular customers are sometimes obliged to buy in the stores of NEXT PLC's competitors. The root of this weak point can be found in the incomplete product range. For example, NEXT PLC doesn't realise the danger of not selling sports wear. In fact, if regular customers of NEXT PLC are interested in sports wear, they have to go to the competitors. This gives the competition a chance to convince NEXT customers of their advantages.

Secondly, customer footfall is a good way to increase sales because browsers looking for a specific article will often buy more than just that item. For example, a man who is only interested in sports wear may buy a gift as well.

On the other hand, if the man knows NEXT does not carry sports wear, he will automatically take his business elsewhere. This is why it is necessary to get him in the store. The device should be: "Come In and find Out!"

4.3 Opportunities

Times of social rethinking should be observed with attentiveness by NEXT PLC in order to make a profit. Nowadays, more and more people are becoming conscious about the significance of nature (Key Note, 2000). Manufacturing with natural fibres and environmentally friendly raw materials is a good opportunity to promote the socially conscious reputation of NEXT, thereby increasing long-term success.

Individuality is a key word for profit. Latest studies show that the average body has changed. People are getting taller and heavier. The biggest ever study of the female figure showed that over the last 50 years the average British woman's bust has grown by four inches, her hips by six inches, and her waist by eight (Arlidge, June 2000). To adapt to these changes leads customers to recognise that NEXT PLC pays attention to them.

4.4 Threats

The biggest threats that NEXT PLC faces is companies that use a "Guerrilla Attack." This means that discounters, especially big supermarkets that are not based on the same market as NEXT PLC, sell similar products. They offer these products for only a short period of time. For example, they sell for only one week at an incredibly cheap price and then they move on. The Tesco supermarket is selling the aforementioned Levi's top-selling 501 jeans at £ 30, some £20 less than the High Street price (Key Note, 2000). Consumers consciously decide to buy these lower priced items in lieu of higher quality, high-ticket products. This hit and run strategy leads to a big part of the demand being satisfied.

5. Political, Economic, Social, Technology (PEST-Analysis)

5.1 Political

A stable political surrounding is the basis for long-term decisions. The United Kingdom, as a Member State of the European Union, fulfils this prerequisite. The government has to act within a definite political framework to achieve the conditions of the European Union and this guarantees NEXT PLC a higher scope of economic actions.

Another advantage of the European Union is the open transfer of goods. This makes it easier for NEXT to sell their products in the different European countries. There are no trade barriers that aggravate sales.

5.2 Economic

Investments in Europe for NEXT PLC are very interesting. The British currency nowadays is exceedingly strong (www.comdirect.de, 2000). This is due to the independence of the British pound to the Euro and has several effects. First, foreign investments for NEXT are relatively inexpensive, and second, it is costly for outside firms to establish in the United Kingdom. However, many countries are reluctant to engage in trade because of these reasons.

5.3 Social

At the present time, 59.2 million people are living in the United Kingdom. Key Note (2000) estimates that in the year 2036 more than 64.9 million people will be living there. This means a lot of new customers for NEXT PLC but the age of the population is increasing.

On the other hand, the social structure has changed dramatically. The progress in medical service and the self-awareness of living leads to increasing life expectancy. Following development of sex education and rising numbers of career women, the birth rate has dropped. These reasons are responsible for declining figures in the NEXT 20 to 40 year old target group.

5.4 Technological

The age of Internet and the reception of new media reveal a lot of potential opportunities for NEXT to boost profit. Some companies in the United States already offer online-orders where the customer can exactly define his wishes and measurements, and send it to the place of production. 48 hours later he receives his package. This is just an example of the endless possibilities. Using this method the companies can react instantly to changes in behaviours.

6. Competitive Analysis

The following competitive analysis is based on Michael Porter's Five Forces Model. It is a necessary prerequisite to deducing whether - and if appropriate, how - the firm should use segmentation as a strategic business tool for understanding the forces at work (Wilson & Gilligan, 1998). The five forces are:

1. the threat of new entrants to the industry
2. the threat of substitute products or services
3. the bargaining power of customers
4. the bargaining power of suppliers
5. the rivalry among current competitors

(Baker, 2000)

6.1. What is the threat of entry into the industry and from where does it arise?

To enter in a new market requires a lot of money because developing new products, buying necessary machines and selling-rooms, hiring staff, and organising a network is very expensive. These are the reasons why only big companies like Tommy Hilfiger, Calvin Klein, and Hugo Boss easily enter new markets. Financial risks for banks are too elevated to support smaller companies, and they do not have the power to react to defensive attacks of exist companies. Additionally, local firms do not have the broad market overview like NEXT, which means that they cannot recognise changes in the market as quickly.

Nowadays, brand loyalty is not a threat for new companies, which makes it a threat for NEXT. New technology is being widely used by consumers, especially those in Generation X, to compare many offers in a short period of time and decide to buy the cheapest one. This challenge is exacerbated by the fact that NEXT's core consumer pool is comprised mainly of Generation X shoppers.

6.2. Where are potential substitute products or services located and what is their likely impact on the organization and the industry?

By talking about substitution, two things have to be distinguished: product substitution and company replacement. Product substitution means that the customer decides to buy a certain item and then he amends his decision and buys another item, which serves his requirements. One example would be if a customer doesn't like the colour of a NEXT jacket, he would probably buy a jumper. This leads merely to a redistribution of profit within the organisation, which is not detrimental to NEXT's success.

On the other hand, company replacement means a substitution of NEXT for its competitor. If we use the above example, the consumer will buy the jacket in the stores of NEXT competitors. In contrast to product exchange, this kind of replacement loses earnings.

6.3. Who are the buyers and what is the extent of their power with regard to the organization?

Buyer power depends on many different factors. The United Kingdom retail market is a business place where countless suppliers meet a limitless demand. This fact gives customers great power because they can slip very fast to another company if they are not satisfied. The target group of NEXT has potentially immense earning power because of their age group, rising wages, and advanced technical education. Therefore their spending patterns should be closely watched to determine buyer trends and changing demands.

Turnover by geographical destination:

United Kingdom 1,379.9

Rest of Europe 29.6

North America 0.0

Middle East 8.0

Asia 3.1

Australasia 4.8

-------

1425.4

The chart on the right shows that NEXT consumers are mostly based in the British market (NEXT Annual Report, 2000). A customer concentration in only one market leads to big economic problems if customers in this market don't buy NEXT items. The company has no possibility of compensation in other markets.

6.4. Who are NEXT suppliers and what is their power with regard to the organization?

The low-skill, low added-value nature of clothing manufacturing means that labour costs are a high proportion of the business, making it very difficult for the United Kingdom to compete with lower labour cost countries in Eastern Europe, North Africa, and Asia. For example, in Jakarta adults were being paid 7700 rupiah (76p) a day while children between 10 and 14 get 4500 rupiah for 10 hours (Milne, 1999). This is the reason why many companies decide to source more from the outside. Total retail sales are expected to reach £30.36bn by 2004 and during the same period of time the United Kingdom manufacturers' sales are anticipated to fall by 28.5% to £4.16bn (Key Note, 2000).

This trend brings NEXT under pressure because it is not possible to produce high quality products at these prices. On the other hand, the company has a lot of power and can dictate the rules because the poor countries doing the work have severe need of the money.

6.5. Who are our present and potential competitors and how intense is present and potential competitive rivalry?

A growing number of overseas clothing retail chains are using the United Kingdom as an initial base for European expansion. Examples include Asian retailers such as Episode and Giordano. Giordano is a highly successful pan-Asian retailer based in Hong Kong. The company has unveiled plans to open stores in the United Kingdom as a prelude to entering the wider European market (Key Note, 2000).

The top existing competitors of NEXT are Arcadia Group, Debenhams, and Marks & Spencer. Arcadia Group PLC is the country's number two clothing retailer behind Marks & Spencer (www.hoover.co.uk, 2000). Especially Marks & Spencer and Debenhams have begun to fight back in recent years (Finch, Oct. 2000). Marks & Spencer spent a lot of money to create an image (Arlidge, May 2000). One reason is that its one-year sales growth was only 4% compared to NEXT's growth of 12.8% (www.hoover.co.uk, 2000). The purchase of 13 C&A outlets will put NEXT on equal footing with Marks & Spencer (Anonymous, Oct. 2000).

However, Debenhams and Marks & Spencer invested a lot of money into developing their Internet business. Debenhams Representative Mr. Earl said the company expected to make Internet profit in four years (Finch, Oct. 2000). In a market where the products are equal and simply the label is different, every possibility to accelerate the profit should be used.

7. Mission Statement

We at NEXT PLC have a task to build, with the main focus of giving all of our customers what they deserve - The Best.

Individuality, long experience, courage in development, and open-mindedness are our tools. The idiom

"The Customer Is The King !!!" is, in our company, not simply a kind of marketing strategy - it is Tradition.

In the following years we will:

- Continue development of the NEXT Brand in the United Kingdom and Ireland · Increase selling space in NEXT Retail outlets
- Extend Directory market share
- Continued to be one of the UK's most effective providers of call centre services.

(NEXT Annual Report, 2000)

This guarantees a financial basis of profitable growth, increasing value for our shareholders, and creating career opportunities and financial rewards for our employees.

Pulling together with a great team of people at all levels, NEXT is determined to provide outstanding value for money to its customers.

7.1 Explanation of Mission Statement

A mission statement should help to concentrate the main goals of the company and prevent it from going in too many directions (Hassan, 1988). In accordance with Businessonline (2000) the above mission statement was written.

In the beginning of the statement, NEXT mentions their aim, which is "to give the Customer what they deserve- the Best." The following sentence describes the tools they want to use in order to link "tradition" to this goal. These tools are "Individuality, long experience, courage in development, and open-mindedness." NEXT demonstrates its difference from other companies by using the idiom "The Customer Is The King."

After this core statement about the ideology of NEXT, they formulate their aims for the upcoming years followed by the results of realising "..increasing value for our shareholders, creating career opportunities and financial rewards for our employees."

At the end of the mission statement, they summarise the goals and mention an additional tool: "Pulling together with a great team of people at all levels, NEXT is determined to provide outstanding value for money to its customers."

8. Marketing Strategies

8.1 Directory and sports wear as a chance

8.1.1. Directory

In recent years the number of active customers increased by 4% to 924,000, and the trading profit amplified by 19% (NEXT Annual Reports, 2000). This result shows the possibilities of development. NEXT has spent £125,000 on e-business development (Finch, March 2000). Compared to Debenhams, which spent £5,000,000 (Finch, Oct. 2000), or Marks & Spencer, which spent £50,000,000 (Anonymious, Sept. 2000), this is nothing. We are living in an age of technology. In a few years most business will be made by Internet. That is the reason why NEXT should invest more in this technology. It should further develop a catalogue in the Internet and probably someday, customers can order custom-designed jeans.

8.1.2. Sports wear

Sports and leisure clothing have been a growing sector in the 1990s, with the market for football kits now worth £150m. Additionally, spending on sports clothing by women has grown by an estimated 70%, with branded clothing becoming an increasingly important component of the sector. At present, the children's sports wear market is estimated to be approximately £1.4bn, or 19.4% of the total sports wear market (Key Note, 2000). These facts show clearly the high potential in this market and the necessity to invest in it. Advertising for kids leads to increasing profit in every business field because the kids come with their parents and the whole family will buy clothes... This can be linked to big sporting events like Olympics or World- or Euro-Championships. NEXT, as a forward-sounding company, can become in this way first in everybody's mind.

8.2 Social rethinking and physical changing

The latest studies shows that more and more people are becoming conscious about the significance of nature. There was a time when nobody cared about air-filters or manufacturing with natural fibres and environmentally friendly raw materials, but those times are over. The number of customers who only support companies, which build the task to protect the Nature, is increasing. Therefore it would be good to aim to focus advertising on these facts and to let everyone know: "We at NEXT PLC protect Nature so our kids can play tomorrow."

As already mentioned in the SWOT-Analysis, the average British woman's bust has grown by four inches, her hips by six inches, and her waist by eight. In general people getting taller and heavier (Arlidge, June 2000). To pay attention to this, NEXT has to mention that they recognise those changes that every individual feels.

8.3 Adjustment to age-structure

The progress in medical service and the self-awareness of living, in connection with development of sex education and rising numbers of career women, leads to a dramatically changing social age-structure. The numbers of young people decrease as the number of older people grows. The target group of NEXT are people between 20 and 40 years. If NEXT pays no attention to these changes they will loose a lot of regular customers. Extending the age of target group is necessary.

9. Conclusion

The above analyses and facts clearly show that NEXT PLC has built a strong name in the United Kingdom retail market. In spite of strong competitors, difficult economics, adverse circumstances, and social rethinking, NEXT has used its keen minds, continually forward- moving processes of improvement, and high standards of quality to overcome these odds.

Double-digit rates of increase delight shareholders not in the least because in the last five years, constantly growing dividends have yielded exceptional results (NEXT Annual Report, 2000).

Earnings per share have been restated in accordance with the requirements of FRS14 Earnings Per Share.

NEXT attributes this continuous growth in sales to the strong link between Brand own label and rapid adaptability. Nowadays, it is very important to have a name because sometimes people are willing to buy more expensive items from a special company. This is, for example, the reason why companies like Marks & Spencer are spending large amounts of money on brand development.

Nevertheless, NEXT can't stop development. It is not allowed to "rest on its laurels." Existing objectives must be developed, while threats and weaknesses must be solved. The spinning wheel of time never stops and the competitor doesn't sleep...

10. Appendix

10.1 References Books:

Wilson and Gilligan, (1998), "Strategic Marketing Management", 2nd edition, Butterwoth Heinemann, Oxford

Baker, M. (2000), "Marketing Strategy and Management" 3rd edition, Macmillan Business, London

Papers:

Anonymous, October 14th, 2000, "Next forges ahead with expansion plans", The Guardian Anonymous, September 6th, 2000, "M&S in drive to expand e-commerce", Times Arlidge, J., June 25th, 2000, "Now bigger is the ideal figure", Observer Arlidge, J., May 14th, 2000, "Britannia's brand-new start", Observer Finch, J., October 18th, 2000, "Debenhams fights back", The Guardian Finch, J., March 24th, 2000, "Shopping Unlimited", The Guardian

Hassan, M., (1988), "Starting and operating a new small business", Cabrillo College, Watsonville

Milne, S., October 27th, 1999, "M&S target of child labour claim", The Guardian Financial Services:

Key Note (www.keynote.co.uk)

Hoover's Online (www.hoovers.com)

NEXT PLC, Annual Report January 2000 (www.next.co.uk)

Miscellaneous:

(www.businessonline.org) (www.comdirect.de)

10.2 Bibliography Books:

Doyle, P. (1998), "Marketing Management and Strategy", 2nd edition, Financial Times Prentice Hall, Harlow

Lynch, R. (1997), "Corporate Strategy", Financial Times Management, London Papers:

Cozens, C., September 4th, 2000, "Marks breaks free", The Guardian

Finch, J., September 16th,2000,"Next shuns the net after staging new comeback", The Guardian

Miscellaneous:

(www.debenhams.co.uk)

(www.marksandspencer.co.uk) (www.arcadia.co.uk)

10.3 Enclosures

- Consolidated Profit and Loss account
- Consolidated Balance Sheet
- Company Balance Sheet