Retail Marketing at NEXT - Case Study Example

Executive Summary 1.0 Introduction: 2 1 About Next: 2 2Next Operations: 3 3Background 5 2.0Analysis: 6 2.1SWOT Analysis: 6 2 1NEXT's Strength: 7 5.1 Product: 14 5.2Price: 14 5.3 Placement: 15 5.4 Promotion: 15 7.0 References: 18 8.0 Appendix: 19 Executive Summary: This report presents a detailed anaylsis of NEXT plc, one of the most famous retail clothing companies in the UK, with respect to its environment, competitors and changing customer trends. A complete SWOT analysis is the respect has been performed to analyse the NEXT business with its competitors and the actions the NEXT has taken to cater with the constant and rapid change in customer buying behaviours. Necessary Financial Reports have been also attached in the appendix to give the reader and idea about the growth and prosperity of NEXT's business. 1.0 Introduction: 1.1 About Next: NEXT clothes and home furnishings are designed to offer style, quality and value for money with a contemporary fashion edge. Their principal activities are retailing, home shopping and customer services management. The Next has a wide product range catering choices for fashion conscious men and women who expect style, quality and value in everything from the clothes they wear to the furniture in their homes. This can be best described by the NEXT mission statement (www.hausarbeiten.de/faecher/hausarbeit/bwh/10320.html): "We want to be the best clothing retailer in the United Kingdom. We strive to exceed our customers' expectations, for our customer is our king. Our stores are well situated and easy to reach. The environment is to be treated with care. We sell fashionable clothes of excellent quality and price. Our employees are our treasure. Our goals are double-digit sales growth and satisfaction of our shareholders in the long run." 1.2Next Operations: Next Retail Limited has 383 stores in the UK and Ireland and also 1 in Denmark as in January 2006. Apart from these Retail Stores Next also has 80 franchise stores overseas, operated by eight franchise partners. Next franchise stores are spread across 14 countries namely: Bahrain, Cyprus, Czech Republic, Iceland, Indonesia, Japan, Kuwait, Lebanon, Malta, Oman, Qatar, Saudi Arabia, Slovak Republic and United Arab Emirates. Next products can also be ordered online by the help of Next Directory which is their mail order and internet shopping service. Orders can be delivered to customers' homes or to a store of their choice for collection. Next Directory has approximately 1,905,000 active customers showing an increase of 14.8% from the previous year. NEXT operates through five divisions: NEXT Retail operates the high street shops through more than 330 stores covering the UK and Ireland; NEXT Directory is the mail order division which also contain the e-commerce platform; NEXT Overseas operates retail outlets in the United States, Asia, Continental Europe, and the Middle East through franchise agreements; Ventura runs the financial services division. Other activities include telecommunications software services and property management. Other Departments of NEXT include: Next Distribution Limited is Next's warehousing and distribution service. It is responsible for maintaining the appropriate inventory levels in its warehouses and provide distribution services their designated stores on as and when needed basis. Next First Retail Finance Limited - operates a funded credit business for a limited number of stores and mail order customers. Next Financial Service Limited - provides support services to the business operations of Next Retail Limited. It does not offer any consumer credit. Next Sourcing Limited (NSL) - a sourcing company working exclusively to design, source, buy and merchandise Next branded products. It employs over 1,000 people in China, Hong Kong, India, Romania, Sri Lanka, Thailand and Turkey. NSL also owns and operates a garment factory in Sri Lanka which manufactures exclusively for Next Retail Limited and employs a further 2,000 people. NEXT Retail accounted for 69% of the fiscal revenue for the year 2006; NEXT Directory, 19%; Ventura, 9%; NEXT Overseas, 1% and other activities, 2%. More than 96% of sales were achieved in the UK market (Lynch, R, 1997). 1.3Background NEXT launched its retail chain in February 1982. Its unique retailing strategy had major impact throughout the UK retailing business and shaping the future of fashion retailing. NEXT enjoyed outstanding record of achieved in a very short period of time as a result of its unique and innovative shopping concept provided the company .Its first store had an exclusive collection of stylish clothes, shoes and accessories confined only for women. Collections for men, children quickly followed with home collections. NEXT main focus is to provide clothes that are styled by the in-house design team and which is able to offer consistency of style, quality and value for money all the time, according to the contemporary fashion needs. Today NEXT trades from over 450 stores in the UK and Ireland alone and another 100 franchise stores overseas. Several larger format stores have opened across the UK over the last few years: NEXT anchor store at the Manchester Arndale Centre opened in October 2005 being the biggest. It is a store with an area in excess of 80,000 square feet. "Next directory" launched in 1998 its ground-breaking mail order operations with a hardback book containing 350 pages, creating the blueprint for catalogue retailing. There are over "970 pages" in the Spring/Summer 2006 book offering widespread collections for men, women and children. NEXT introduced it's online shopping in 1999 and this book is also available on the internet to shop. NEXT continues to improve customer service introducing new initiatives such as next day delivery as standard for NEXT Directory orders placed before 5pm. Customers may collect or return unwanted items at any of 400 stores nationwide should this be more convenient and a new in-house delivery service has been set up to deliver large Home items with the ability to deliver at weekends. As well as ordering on-line, customers are able to check their accounts and make payments this way ((Finch,J, 2000). 2.0Analysis: 2.1SWOT Analysis: This SWOT analysis is done keeping in mind the changing customer trends in shopping. 2.1.1NEXT's Strength: One of the main strengths of NEXT Plc is their adult fashion wear. The fashion wear are targeted for people between age groups 20 years to 40 years and are sold under their own label. Unlike some of its competitors who have problems satisfying this segment, NEXT has managed this segment very well. This is achieved by selling their 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 (Finch,J, 2000). 2.1.2NEXT's Weakness: As the customers are more shifting towards shopping on the internet, it is still hard to predict that this change will also increase the buying of clothes online. Although further gains can be made by investing in the e-commerce, NEXT have different opinions. It only spent GBP 125,000 on its e-commerce division and perceives the internet as an extension of the telephone. On the contrary its competitors interpret the internet phenomenon differently. "Debenhams" for example invest more than GBP 5 million on internet technology and Mark and Spencer spends a staggering GBP 50m in its ecommerce division (Anonymous, September 6th, 2000). If in the future the trend of internet shopping has a boost NEXT is in a bad situation compared to its competitors because it will be lacking the services acquired by its competitors by investing so much. Another weakness the Next faces is that other retailing companies in the UK are concentrating on the similar type of clothing. In case competitors gain market share or if consumers change their buying behaviours, this can adversely affect NEXT. Any inability of NEXT to adapt to these changing trends quickly can result in loss of market share. 2.1.3 Next's Environmental opportunities: Introducing the mail order is an important step in the retail trading. Usually customers between ages 20 years- 40 years have little time to do their shopping. So this feature allows them to do shopping without wasting much time. Next is ranked number one among the retailer which are offering mail order clothing. This could be a great opportunity for NEXT to increase market share both domestically and internationally. 2.1.4 Next's Environmental threats: The main threat Next face is that there is very low market growth and there is strong competition among the competitors. Some companies are even very hostile in their attempts to gain maximum market share or to even maintain their current market share. Many companies are even out sourcing there manufacturing to the third world countries to incur low labour cost and offer dumping prices. For example Tesco offered Lewis 501 denims twenty pound cheaper than the regular price (Wilson and Gilligan, 1998). 3.0 Next's Objectives and Strategies 3.1 Good quality and price: This is the key factor for Next's success. For this the first step is to look for a supplier who is located in an up-and-coming market to participate at the low labour costs. But this country should have background of manufacturing clothing, for example India and Hong Kong so that it is easy to recruit well trained employees. Furthermore should the supplier be a part of the production process so management personnel could be reduced along with the stock capacity. A quality assurance officer representing NEXT should be at available to the suppliers at all the time to guarantee the high quality of clothes. To lower the costs and to gain a better trade position the number of suppliers should be reduced to the minimum and therefore new price conditions negotiated. This can lead NEXT to low costs and high quality in the long run. 3.2Relationship between NEXT and its environment: Next also focuses on the green issue strives to make further progress in this direction. Firstly all of the production process of NEXT should guarantee that the plants are environment friendly. All the Next factories are equipped with up-to-date filters which reduces erosion and the used chemicals are biological decompositioned at all times. Secondly NEXT and its suppliers should aim their production to be achieved without using child labour and should communicate this to its customers. To be credible in the public eye a joining up with a non-profit-organisation such as Save the Children to monitor NEXT activities in this sector could prove worthwhile. The outcome of this could be a badge which says "we fight against child labour" and this is useful for marketing purposes (October 14th, 2000). Another aspect is the customer itself. He should be aware that resources are limited and therefore the use should not be wasteful. Because of this, NEXT should use paper bags and only when it is really needed, contrary to this, Tesco uses plastic bags and even the smallest items are wrapped (October 14th, 2000). So money can be saved and the environmentally awareness be sharpened. 3.3 Make Shopping fun: As the market for clothing is relatively static, competitors in this segment gain market shares by price competition. One way to do this is to make shopping as an event and therefore add value for customers is to have superstores. Customer satisfaction should be guaranteed at all stakes, from the shelves to corridors. From customer care and service in general nothing should be omitted to satisfy the customer (see fig 1.1 appendix). So NEXT would be better off if they close all their small branches and replace them by superstores. These superstores should have the ability to offer special services like make-up studio, clothing consultation kiosks or even child care units for parents how want to shop alone. Also small events like fashion shows and even autographing sessions could prove helpful to attract new customers and make shopping for them enjoyable. Providing resting places for husbands who are not actively engaged in the shopping process, can also be helpful in improving customer services so that they can sit, relax and drink a cup of cafe. Good service and all the other strategies which are mentioned above should be very helpful to grow NEXT exponentially and for the betterment market positioning for NEXT Plc in the near future (Fig 1.2- 1.6 Appendix). 4.0 NEXT'S PEST - Analysis This analysis is a helpful tool to take a closer look at the general environment. Although the PEST analysis relies on past events and experience, it can be used as a forecast of the future (Wilson and Gilligan, 1998). 4.1 Political factors: The political environment is good. The government is stable and reliable for NEXT to perform its operations soundly. 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 (October 14th, 2000). 4.2 Economic factors: The UK's economic environment is somewhat contradictory. On one hand there is strong sterling compared to the Euro and all the Euro countries encourages imports and strives to hold their domestic prices at an striking level. But on the other hand it is difficult for the UK to be competitive with these countries 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 globally this factor would have a major impact on NEXT's sales. Therefore any investment outside the UK might seem very attractive. Also re importing good back to the domestic market can be helpful. Another issue is the constant fall in the unemployment rate. Economically this is good news for UK but for companies like NEXT, this has a different impact. For NEXT it means higher expenditure on wages, as well as greater difficulties in recruiting good employees. 4.3 Social factors: Nowadays people retire earlier and are working for shorter hours. Average working hours per week have decreased significantly over the last 10 years. As a result many people have more free time. This means they have ample time to compare prices and quality of goods and services of different retailers. 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 mainly the internet, the customers is better informed and aware of these environmental issues and their challenges. They want more than just a product. They are interested in the production process. They want 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 become aware of such practices, companies get into real trouble if they do not respond immediately (Milne S, October 27th, 1999). 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 (Wilson and Gilligan, 1998). 4.4 Technological factors: Another issue is the speed at which the technology is changing. This also has an impact on the industry, though it is nothing compared to the fast growing internet business but it is important. New technology allows new products to be developed, e.g. Lycra, Supplex or other synthetic material (Doyle P, 1998). 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 (Finch,J, 2000). 5.0 NEXT Marketing Mix: Next marketing mix is briefly described below: 5.1 Product: NEXT is committed to providing quality products for its customers. A major part of this commitment to quality involves ensuring that their products are safe for their customers to wear and use. A team of around 100 specialist technologists works closely with suppliers to ensure that the high standards that they have developed are maintained. Products are tested to ensure that they meet the requirements of the relevant European or British Standard for safety and where no such recognised standard exists, internal guidelines are used and risk assessments are carried out to ensure that NEXT's products are safe and suitable for the purpose designed, whether the product is clothing, footwear, an accessory, or an item for the home. 5.2Price: Distinctive styling and exclusive designs have given NEXT a strong brand image which remains their greatest asset. NEXT women wear has quickly became synonymous with value for money, good quality fashionable clothes designed to meet the demands of busy lifestyles. The prices are relatively high but compared to the brand image and quality, NEXT justifies them very effectively. 5.3 Placement: NEXT mainly focuses on retail sales, and Face to Face selling. Customers are pampered in their stores and giving them unmatched service. Mail order is another major selling activity that NEXT practices. Other than that internet is also contributing towards sales. 5.4 Promotion: Effective promotion depends on finding out what appeals to your customers and then applying imagination to trigger their interest. NEXT promotional mix mainly encompasses on advertising, direct mail and exhibitions. In order to maintain its market share NEXT has to advertise year round introducing new designs for different seasons. 6.0 Conclusion and recommendations: NEXT portrays the perfect example of 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 (Arlidge, J (May 14th, 2000). NEXT is very well positioned in the UK market and because of its in house design team it is very flexible to react to changing consumer trends. 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. This claim best describes NEXT's vision towards its brand value: "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." As far as recommendations are concerned, following are some ways in which NEXT could improve considerably: Next should be investing more on its E-commerce division, as the customers prefer to shop online to save time. Secondly as the competition is on the quality and price, Next should adopt a pricing strategy which is competitive to all in order to maintain its market share. To increase it market share Next should focus on the online shopping, as investing in this division can improve Next market share considerably. More use of new technology can provide break thorough results for NEXT, as acquisition of this new technology will in return reduce cost. Outsourcing to the third world may be a good idea as it can also reduce cost for NEXT, although I should not be encouraged. 7.0 References: 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 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 8.0 Appendix: Figure 1.1 NEXT customer Enquires: Financial Analysis: Figure below analyses the growth of NEXT over 5 years. This growth is measured in terms of Profit, EPS and Dividends per share. Fig 1.2 Fig 1.3 Fig 1.4 Income Statement: Fig 1.5 Balance sheet: Fig 1.6. Read More