Strategic Management of Next Plc - Case Study Example

Running Head: NEXT PLC. Next Plc: Strategic Analysis of the of the Next Plc: Strategic Analysis Introduction Approximately every successful manager understands the implication of offering quality brilliance to BOOST a characteristic advantage over the contestant. After all, increasing a benefit is the key to triumph and yet for the sake of endurance. Though, many of the purported organizational strategies that companies relying are not manageable. Why These strategies may not be well planned and cannot place the trial of time. Nevertheless, commanding organizational plans cannot easily be imitated; things like a patented algorithm, exclusive right to a special resource, and brand name recognition. "If only I knew then what I know now, I would have done things differently". (Halbleib, 1993, 803) public constantly makes this statement after they have implemented the incorrect corporate strategies. As we exist in era of entwining complication, acceleration, and ever changing market, making the correct decision is enormously significant for strategic planning. It is fair-haired to state that each organization and individuals have their sole set of strengths, weaknesses, opportunities, and threats. "It is extremely vital that an organization determines its strengths, weaknesses, opportunities, and threats, as well as the competitors". (Halbleib, 1993, 804) by linking the SWOT examines with the fair scorecard, an association can balance its strengths Boosts its competitions' weaknesses, and optimise its opportunities within the market. This paper is intended to analyse the strategic management procedure of Next plc. Company Overview Next is a UK based vendor contribution stylish, good quality harvest in clothing, footwear, accessories and home products. The group first and foremost operates in the UK. It is headquartered in Ender by, Leicester, and employs about 39,000 people. The group recorded revenues of 3,283.8 million during the fiscal year ended January 2007, a BOOST of 5.7% over 2006. The operating profit of the group was 507.5 million during fiscal year 2007, a boost of 8.2% over 2006. The net profit was 331.5 million in fiscal year 2007, a boost of 5.7% over 2006. Next's Mission Statement Next's mission is to be the natural choice retailer in the UK for fashion aware men & women who expect style, distinction & quality from their clothing Business Description Next is primarily engaged in vending, and customer excellences management. The group operates 480 stores and has operations in the UK, the Middle East, Asia and other European countries. The group giving its services through five business separations: Next retail, Next directory, Ventura, Next sourcing and other. Other segment includes investment in associates; Choice Discount Stores Limited and Cotton Traders Holdings Limited. The Next trade separation is engaged in the vending of fairly priced clothing for men, women and children. It also sells house wares and furniture through 480 stores in the UK and Eire. This separation also has franchisee stores in Europe, Asia and the Middle East. The group currently has 129 franchise stores in the Middle East, Russia (13 stores), Turkey (5), India and Thailand. The Next directory separation markets women's wear, mens wear, children's wear, home products, accessories and jewellery through direct mail catalogues, phone and a transactional website with more than 2 million active customers. The Ventura separation provides call centre and customer support excellences to NEXT and other companies. It operates across many sectors including telecom, utilities, monetary excellences, travel, media and the public sector. Ventura employs about 10,000 people. It has a call centre in the UK and another call centre in Pine, India, which handles business on behalf of Next Directory and two other clients. The Next sourcing separation has operations in Mainland China, Hong Kong, Romania, Sri Lanka, Turkey, the UK and other locations. It is engaged in the design, sourcing, buying, merchandising and quality control of the group's products. In Sri Lanka, the separation also owns and operates garment-manufacturing facilities. The other separation includes property management separation choice, an associated company that operates 16 discount stores and Cotton Traders, which sells its own brand products. In addition to vending, mailing and Internet sales, the group also operates franchised stores through 'NEXT Franchise' in its overseas markets. Next Franchise operated 129 stores in fiscal 2007. History As far as the establishment of next is concerned it was in 1981 when J. Hepworth & Son Gentleman's acquired Kendalls, a women's clothing chain. The collection launched was of 70 NEXT stores to marketplace for women's attire in 1982. After Two years, it opened 52 NEXT men's attire stores. The first store was opened in Edinburgh that was a mini-departmental store incorporating women's wear, men's wear, shoes and a cafe. Then they come up with Interiors variety of home furnishings in 1985. It also acquired retailer Lord John in a move that allowed the group to expand its chain of men's wear stores, and opened its first complete store with all product lines in Regent Street, London. In 1986, the parent company, J Hepworth & Son changed its name to NEXT plc. NEXT acquired the following companies in the late 1980s to improve its business: (Grattan, 1986) NEXT launched NEXT children's wear (1987) and the NEXT Directory in 1988. Faced with monetary difficulties, the group sold several non-core operations, including Salisbury and Sales to the Ratners Group in 1988, Dillon's to T&S Stores in 1989, and Grattan to German mail-order company Otto Versand in 1991. It also shut down unprofitable stores and several manufacturing facilities. The group began expanding internationally by opening stores in the US and offering franchise opportunities around the world. The group also managed the UK operations of Intimate Brands' Bath & Body Works between 1994 and 1996. Online shopping was launched through the group's website in 1999. NEXT opened format stores in Nottingham, Birmingham, Dudley and Newcastle Gateshead and a large home store at Glasgow Braehead in 2003. The group launched its website for selling flowers in the same year. Following the success of its franchise in Iceland NEXT strengthened its presence in the Scandinavian market by opening a trial store in Copenhagen, Denmark, in 2004. The group's Ventura separation established a call centre in Pine, India to handle calls for NEXT Directory and other clients in 2005. It also launched its bridal registry in NEXT stores in the same year. In the same year, the group opened the anchor store at the Manchester Arndale Centre. In February 2007, next announced its plans to open franchise outlets in Pakistan as a part of its international expansion strategy. Videocon introduced a range of products, which includes, colour televisions, cordless irons, toasters and microwave ovens under the Next brand, in the same month. In June 2007, the group secured its first large format store in Scotland at Aberdeen's Bon Accord and St Nicholas development. In the same month Next repurchased for cancellation 473,965 ordinary shares of 10pence each at an average price of 2202.1 pence per share. Ventura decided to commence selling warehouse and distribution excellences, initially using available capacity in the NEXT retail and directory network in 2007. The group added 41 new stores in fiscal 2007 including 13 stores in Russia and five in Turkey. In addition, it opened stores in India and Thailand and further plans to open about 25 stores in this region in fiscal 2008. Major Products & Excellences They are primarily busy in vending, home shopping and client excellences management. The group's key products and excellences include the following Products: 1. Home ware 2. Men's wear 3. Women's wear 4. Children's wear 5. Gifts 6. Accessories 7. Footwear 8. Flowers 9. Jewellery 10. Electrical and electronic goods 11. Excellences: (Online excellences (wedding list, photo art, fresh flowers)) Next's Business Strategy The primary financial objective of the Group is to deliver long term sustainable growth in earnings per share. We aim to achieve this by implementing the following strategies in our operating businesses: Improving and developing NEXT product ranges, success in which is reflected in total sales and like for like sales growth; Profitably increasing NEXT selling space - all new store appraisals must meet demanding financial criteria before any investment is made and success is measured by monitoring achieved sales and profit contribution against appraised targets; Increasing the number of customers shopping from home with the NEXT Directory and their average spend; Improving gross and net margins by better sourcing, continuous cost control and efficient management of stock levels and working capital; and Purchasing shares for cancellation where it is earnings enhancing and in the interest of shareholders generally. Business Environment Analysis BCG Growth Matrix The BCG matrix gives a simple (sometimes simplistic) overview of the current relativities in Next's portfolio and limitations arise in its implementation when trying to devise strict dividing lines. As renowned, the textbook analysis dictates that there will only be one market leader, i.e. only one company assigned to the left-hand quadrants, and therefore only one company which is termed a 'star' or a 'cash cow' - with the requirements scores determining its precise position. However, it forces us to take an overview of all customers and highlights individual contributions. Revenue Analysis They are having revenues of 3,283.8 million in the fiscal year ended January 2007, a boost of 5.7% over 2006. The UK, Next's largest geographical market, accounted for 95.2% of the total revenues in the fiscal year 2007. Next generates revenues through five business separations: Next retail (68.7% of the total revenues during fiscal year 2007), Next directory (23.6%), Ventura (5.8%), Next sourcing (0.2%) and other (1.7%). The group also reports revenues under the 'other' head, which includes revenues from subsidiaries and franchised stores. Revenues by Separation During the fiscal year 2007, the Next retail separation recorded revenues of 2,255 million, a boost of 1.7% over 2006. The Next directory separation recorded revenues of 774.5 million in fiscal year 2007, an BOOST of 13.1% over 2006. The Ventura separation recorded revenues of 190.9 million in fiscal year 2007, an BOOST of 27.9% over 2006. The Next sourcing separation recorded revenues of 6.4 million in fiscal year 2007, a decrease of 26.4% over 2006. The additional separation recorded revenues of 57 million in fiscal year 2007, an addition of 22.6% over 2006. Revenues by Geography The UK, Next's largest geographical market, accounted for 95.2% of the total revenues in the fiscal year 2007. Revenues from UK reached 3,125.8 million in 2007, an BOOST of 5.1% over 2006. Rest of Europe accounted for 3.7% of the total revenues in the fiscal year 2007. Revenues from Rest of Europe reached 120.4 million in 2007, an BOOST of 18.3% over 2006. Middle East accounted for 0.8% of the total revenues in the fiscal year 2007. Revenues from Middle East reached 26.4 million in 2007, an BOOST of 30% over 2006. Asia accounted for 0.3% of the total revenues in the fiscal year 2007. Revenues from Asia reached 11.2 million in 2007, an BOOST of 13.1% over 2006. Corporate Social Responsibility NEXT continues to consolidate and integrate Corporate Responsibility ('CR') commitments throughout the Group. A third party provides independent assurance on the content of the 2007 CR report, which will be published on the Company's website later this year. NEXT's commitment to CR matters has also been recognised externally by its continuing membership of the FTSE4Good Index Series. NEXT has a CR forum of 15 senior managers and directors representing key areas of the business, co-ordinated by a CR Manager, to develop and implement its strategy. The objective of the forum is to review key business drivers and associated risks in order to embed CR considerations within the Group's business operations. The CR Manager holds regular updates with the executive director responsible for CR matters. NEXT has identified its supply chain as a key area of consideration for CR activities and its supplier Code of Practice remains at the heart of the Group's operations. The code is a set of ethical trading standards which form an integral part of NEXT's business and stipulates the minimum standards for its suppliers in relation to workers' rights and conditions of work, health, safety, welfare and environmental issues. During the year the Code of Practice team has been expanded both in the UK and overseas and a Code of Practice conference was held to educate suppliers on its requirements. Internal training is also provided to improve identification of potential Code of Practice risks. NEXT works in partnership with organisations in the UK and overseas to establish how ethical standards can be applied implemented and monitored both in factories and with home-workers. PEST - Analysis This analysis is a helpful tool to take a closer look at the general environment. Although the PEST analysis rely on past events and experience, it can be used as a forecast of the future (Wilson and Gilligan, 1998). Political factors The political environment is good. The government is stable and reliable, even if Britain fails to achieve total agreement with some EU policies from time to time. At the present no EU directives are known which will have a direct effect on the UK clothing retail industry in the near future. Due to the EU membership a trend can be seen towards stricter environmental protection legislation. This may have a direct or indirect effect on NEXT or his suppliers. Economic factors Looking at the economic environment, it is somewhat tricky since on the one hand there is the strong sterling compared to the Euro. Euroland encourages imports and endeavours to hold domestic prices at an attractive level. But on the other hand it is difficult for the UK to be competitive outside its boundaries because of the high pound sterling exchange rate against the Euro. As NEXT sells about 96% in the UK marketplace, this may currently only have a limited effect, but could be more important in the future when thinking globally. This can also be seen on the "Big Mac - Cross Rates" table, where hamburgers sold in the UK are more expensive than in most other countries. So an investment outside the UK might be very attractive - also speaking of "re-imports" to transfer the goods back into the domestic market. Another issue is the falling unemployment rate. For the UK population this is good news but for companies like NEXT, this has different implications. For NEXT it means higher expenditure on wages, as well as greater difficulties in recruiting good employees. Social factors Speaking of the socio-cultural future it should be mentioned that people retire earlier these days, as well as working shorter hours. Average working hours per week have decreased over the last 20 years. As a result many people have more spare time. This means they have time to compare prices in the High Street and the quality of goods and services from retailers. But as a result, they spend more time in the shops. Another issue these days are the "Green environmental issues". Because people have more time and have ample access to the media via the TV, radio, as well as newspapers and the Internet, the consumer is better informed and therefore this awareness of environmental issues challenges him to care. He wants more than just a product. He is interested in the production process. He wants to know if the factories are environmentally friendly or not, where his product was build and under which circumstances etc. etc. So one problem in the clothing retail sector could be child labour. There are companies who rely on it in order to be competitive in their domestic market, for example Marks and Spencer. Marks & Spencer had been accused of using child labour in Indonesia in 1999. But once the customers becomes aware of such practices, companies get into real trouble if they do not respond immediately. Consumers who are looking for a best price purchase, may however not be prepared to consider the economic price which their social conscience inflicts on those companies whose products offends their ethics and which they consequently shun. Technological factors Another issue is the speed of technological transfers which also has an impact on the industry - it is not comparable with the fast growing internet business - but nevertheless it is important. New technology allows new products to be developed, e.g. Lycra, Supplex or other synthetic material. Existing materials can be produced quicker and cheaper. Adopting these technologies can be a decisive factor as to whether a company is ahead of his competitors or whether it lags behind. SWOT - Analysis The SWOT analysis examines the organisation's external environment and also explores the internal environment (Lynch, R 1997). This requires listing and analysing the main strengths of business, its weakness and the likely threats and opportunities it will be facing in the future (Doyle, P 1998). Organisational Strength The strength of NEXT Plc is their adult fashion wear for people between 20 to 40 which are sold under their own label. This is their main target group. While some of its competitors have problems to satisfy this segment, NEXT managed it very well in the past, selling their stylish products at reasonable prices. NEXT customers associate with the NEXT label - good quality of the cloths used and good workmanship. As they are using their own brand they can react on consumer wishes very quickly and have total control over the quality management. Organisational Weakness Further gains can be made by the e-commerce division. NEXT, who spent GBP 125,000 sees the internet as an extension of the telephone to order their products online. It is nothing more than a vehicle to get the orders to the retailer. Their competitors interpret the internet phenomenon differently. Debenhams for example invest more than GBP 5m on internet technology and Mark and Spencer even spend GBP 50m in e-commerce and digital TV. Right now, nobody can tell if e-commerce will be the future of shopping and customers are satisfied sitting on the computer to chose their clothes. But if the trend of internet shopping goes further NEXT is in a bad situation compared to its competitors because its platform is not sufficient enough. Another weakness is the concentration of similar type of clothing retail companies on the UK market. This can damage NEXT if competitors gain market share or if consumers change their habits and NEXT cannot adapt to these changing trends quickly. To diversify into foreign markets could balance any possible risk of decreasing sales. Furthermore such a policy would strengthen NEXT's position if the pound becomes weaker or if the government decides to join the Monetary Union. Environmental opportunities Nevertheless mail order is an important plank in the retail trading stakes. Employees aged 20-40 have little time to do their shopping. So it is good that NEXT has gained a foothold in this market. They are ranked number one among the High Street names which are offering mail order clothing. This could be a great opportunity for NEXT to increase market share -speaking of the domestic market as of the foreign markets - to use their knowledge and experience over the years they can make it even harder for its competitors to step in. More opportunities are mentioned at chapter 6. Environmental threats A threat is the low market growth and the strong competition. Some companies are very aggressive in their attempts to gain market share or to maintain it. To reach their aim they are offering high street products manufactured in third world low labour cost areas at dumping prices. Tesco for example offered Lewis 501 denims twenty pound cheaper than the high street shops. Competitive Analysis The objective of such an analysis is to investigate how the organisation needs too form its strategy in order to develop opportunities in its environment and protect itself against competition and other threats (Lynch, R 1997). The report will use the Porter Model to give an idea what kind of influences exists and how a company can deal with it. Bargaining power of suppliers To what extend have the suppliers of NEXT power over the company In the case of NEXT the influence is limited because there are a lot of providers in this sector. If a supplier were to ask for an increase in his price, or for other better conditions, his customer could easily replace him in a short period of time. Therefore mutual dependence is rated low. Bargaining power of customers So far as the customer is concerned he has probably the most power because it is he who buys the product and spends his money. The impact of an individual buyer who goes shopping at a branch and seeks price cuts is likely to be negligible. However speaking more generally, if the phenomenon was multiplied by many thousands of price conscious customers who are not willing to pay the ticket price, management will need to cut prices to avoid losing sales. Because clothing is not very item specific - a pullover is a pullover - whether you buy it from NEXT or Marks and Spencer. The only way to attract consumers to buy a company's products instead of the competition's, is to add value, such as label, style, price or quality. But still there is no guarantee that NEXT will perform better than other clothing companies. The customer decides which product he likes - not the company. Threat of new entrants to the industry A threat to NEXT are the new competitors entering the market. Maybe not the small ones because there is a lot of capital needed to go head to head with NEXT - the threat comes more from the big labels, department stores or chain companies outside the UK. Companies such as Calvin Klein and Donna Karan, for example, have money, knowledge and the power to enter the clothing market in a short period of time. Both which opened their 8,000 to 10,000 square feet stores on New Bond Street or Ralph Lauren which opened his 45,000 square feet store in central London demonstrate how to infiltrate a rather conservative domestic market. Additionally, US catalogue retailers are venturing into the UK market. Lands' End, the ninth biggest mail order company in the US, had opened a subsidiary in the UK but also struggle from the strong rivalry, sales are down by 1.9% to USD 143m (2000). Threat of substitute products or services Another threat in the eyes of Michael Porter is the issue of substitution. Speaking of the clothing retail market this problem is not a big issue. A pullover can be a substitute for a jacket, or trousers for skirts, but since NEXT are provider of all these items anyway so the impact of a substitute is limited. However the threat in this market is that NEXT fails to note these trends. The Customers would substitute NEXT with a trendier company if their products are not stylish, interesting or mainstream enough to attract customers or the timing is wrong. Rivalry among current competitors There exist a huge number of clothes retailer in the UK approximately over 25,000 combined with other outlets makes them more than 45,000. This indicates a high rivalry between competitors. In this phase of the market cycle where there is more or less no growth, competition is often price-based and therefore very aggressive. To build customer loyalty with price cutting strategies is very difficult if not impossible. That means consumers are looking for the best offer with regard to price, service and quality. If NEXT wants to increase market share it must take sales from its competitors and that increases rivalry. So it is a kind of price spiral where companies have to cut prices to sell their products. This leads to decreasing margins and probably to less competitors. This can be seen in the grocery shopping sector where competition was such though that only a few big companies survived. Another issue are the high export exit tariffs. If a company like NEXT, Marks & Spencer or C&A want to leave the UK market it means they have to sell all their branches and get rid of most of their employees. This causes a lot of problems in terms of the relevant trade unions, bad publicity or cost for developing a social viability plan. These are some reasons why companies mostly stay in their known marketplace instead of leaving them for new opportunities. Conclusion NEXT is an example how a boat can be steered through storms and waves. While most of its competitors struggle from the declining market, NEXT managed to increase its market share over the last six years. Due to high sales they could increase their dividends which had a positive effect on shareholders and investors. The company is well positioned in the UK market and very flexible to react to consumer wishes. They established with a minimum of time and money a quick and easy solution for those customers who want to order via the internet. By now they are the only big UK clothes retail company who earns money with e-commerce. Marks and Spencer for example expects to be profitable by 2003. In our time it is very important to link a company with an image, to give it its individual identity. That is one way or probably the only way to differentiate from its competitors. Many big British corporations like British Airways, Rover or Marks and Spencer missed to build a strong brand value and that is one additional reason why those companies suffer today. NEXT on the other hand linked their label with trendy clothes and professional fashion with good quality and price. NEXT also expands its network by opening more, bigger and more customer friendlier stores. To translate their aim into action, a contract was signed to buy at least 13 former C&A stores which will bring them face to face with Marks and Spencer. References Books Lynch, R (1997), Corporate Strategy, Financial Times Management, London Wilson and Gilligan (1998), Strategic Marketing Management, 2nd edition, Butterwoth Heinemann, Oxford Doyle, P (1998), Marketing Management and Strategy, 2nd edition, Financial Times Prentice Hall, Harlow Financial Services Wright Investor Service (www.wisi.com) Hoover's Online (www.hoovers.com) Hemscott.Net Group Plc (www.hemscott.net) Key Note - Market Information Lands' End, Inc., Annual Report January 2000 (www.landsend.com) NEXT Plc, Annual Report January 2000 (www.next.co.uk) Figures 1. Wright Investor Service 2. Anonymous, (April 27th 2000), 'Big MacCurrencies', The Economist 3. Porter, M (1980), Competitive Strategy, Free Press 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', Financial Times Arlidge, J (May 14th, 2000), 'Britannia's brand-new start', The Guardian Finch, J (October 18th, 2000), 'Debenhams fight 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 Dinesh, D, Palmer, E. (1998), "Management by objectives and the fair scorecard: will Rome fall aBOOST", Management Decision, Vol. 36 No.6, . Erikksdon, I, McFadden, F (1993), "Quality function deployment: a tool to improve software quality", Information and Software Technology, Vol. 35 pp.491-8. Halbleib, L, Wormington, P, Cieslak, W, Street, H (1993), "Application of quality function deployment to the design of lithium battery", IEEE Transaction on Components, Hybrids, and Manufacturing Technology, Vol. 16 No.8, pp.802-7. Hauser, J.R, Clausing, D (1988), "The house of quality", Harvard Business Review, pp.63-73. Kaplan, R.S., Norton, D.P (1996), "The fair scorecard: translating strategy into action", Harvard Business School Press, Cambridge, MA, Krause, D.G (1996), Sun Tzu: The Art of War for Executives, Nicholas Brealey, London. Lee, S.F, Roberts, P, Lau, W.S., Bhattacharyya, S.K (1997), "The use of Chinese philosophies to assist achievement of world-class business excellence", CIRP International Symposium on Advanced Design and Manufacture in the Global Manufacturing Era, pp.21-22. Tvorik, S.J, McGivern, M.H. (1997), "Determinants of organizational performance", Management Decision, Vol. 35 No.6 Miscellaneous www.businessonline.org/info/mission.html www.debenhams.co.uk www.marksandspencer.co.uk www.savethechildren.org Read More