Business Environment: How the UK Government Policies Affect Next Plc - Case Study Example

Business Environment: How UK Government Policies Affect Next Plc The economic policies framed by a government have both positive and negative impact on the major companies functioning in the country. The recent Euro crisis and the reformed trade policies of the UK government have a major impact on the retail sector shops operating there. Several huge players have failed to show profits and many others are struggling to sustain their meagre profits. This study analyses how the general UK economy, its regulatory norms and the other global factors influence the growth of Next plc. It explores the various strategies framed by the retail giant to overcome the obstacles and get established as the leading retailer surpassing Marks and Spencer. Introduction Gaining a competitive edge over the other companies in the 21st century is a herculean task. The retail industry in UK, particularly the apparel and footwear industry is highly competitive. UK has the worlds sixth largest economy in the world. London is a major financial hub in the world next to New York. The UK economy is struggling to stand up after the global recession. The double dip recession damaged the country’s economy beyond imagination. UK economy shows slight improvement now and then, but slips back quickly to the huge losses in a short period of time. The government is trying various measures to improve the situation. The retail industry which is backbone of UK economy has suffered massive losses in the past few years owing to various constantly changing government policies. The shutdown of huge retailers like HMV and Jessops bought the plight of many such failures into limelight. However, certain companies like Next plc continue to show massive profits even in such grim situations. Analysing the tips and tactics followed by them will help many other retail companies in the verge of dissolving, gain a favourable insight into their position. Next Plc is UKs biggest apparel retailer. It achieved this position by pushing back Marks & Spencer in 2012. Next plc has over 550 stores situated all around the world. Their annual revenue crosses £3,501.1 billion. Nearly 58,500 employees work for them. The strategies and the administration practices used in Next plc are followed by many companies all around the world. Next plc was started way back in 1864 by Joseph Hepworth in West Yorkshire, Leeds. The headquarters of the company is situated in Enderby, UK. Next plc has three main channels of distribution, Next Retail, Next Directory and Next International. Next Retail comprises over 500 physical stores spread in the UK. Next Directory controls the e-stores and catalogue sales. Over 2 million users get access to Next plcs products through this service. Next International controls nearly 180 stores spread in the Middle East and many other countries. Apart from them they have separate channels for customer service, designing unique clothes and managing wholesale purchases. Let us start by comparing the goals and objectives of the Next plc with another major retailer in the UK market, B & M Retail Ltd. Next plc is a major clothing retailer. They also sell footwear and home products. B & M Retail Ltd is a private retail chain selling various goods like home furniture and an array of household items. Next Plc’s goal is to sell “Exciting, beautifully designed, excellent quality clothing and home ware; presented in collections that reflect the aspirations and means of our customers”, while B & Ms motto is to create a store with “something for every family”. As a public limited company Next plc has some advantages in securing easy loans. Their massive profits and 150 years of long history give them the benefit of accumulating huge assets which can be used in terms of crisis. So they can target a specific set of rich customers who are ready to spend on luxurious designer clothes. On the other hand, companies like B & M act according to their motto serving every family. The common people or the middle class is their target. A survey suggests a major portion of B & M’s customers are above 50. So, they market DIY products at a cheap rate which satisfy their day to day needs at a very low cost. Next plc targets earning youth aged 20 to 40 mainly. They produce exclusively designed clothes, accessories and things for them at a slightly higher cost. The main objectives of the Next plc for the year 2013 according to their interim statement are given below. It suggests they are trying their best to manage the difficult competition in the market using various cost cutting and expansion strategies. The objectives of the B & M retail ltd are also more or less similar. But, they aim in retaining the existing customers rather than target new markets or expansion. Their green initiatives in operations and waste management will help them attract more customers interested in the environment. Retaining the existing customers by providing them products at a discount rate Introducing new innovative products which can be found only in the B & M retails stores to attract more customers towards them Deploy greener technologies for waste management The main difference between Next plc and B & M retail is their ability to manage money. Being a public limited company, Next plc has much more monetary support than the other store. But, they have to follow stringent processes to get them and submit numerous documents regarding every miscellaneous spending. The monitoring on ROI or return on investment will be very high as it is a public limited company. On the other hand B & M can operate independently taking major risks in terms of financial management. They are answerable only to a handful or people financing them that too, only if they are not able to show the promised profit. Quasi loans and credit transactions are permitted for private companies while they cannot be used by the public limited companies (BGL, 2007). Comparing and contrasting both the companies we can very well say they have similar goals and objectives but different target customers. The strategies used by them to gain profit is also different as Next aims increasing the sales as well as price of their goods to add more value to them, while B & M aims in bringing down the cost without compromising on quality. The value of a designer dress increases with its price and uniqueness while the value of a gardening tool increases with its low cost and high quality. Comparing the future and demand among the public, both the companies can easily succeed if they follow their current success strategies dedicatedly. Stakeholders for Next Plc Any person who is liable to get affected by the policies of the company are considered as its stakeholders. The suppliers, customers and the people who work for them are the key stakeholders for Next plc. Their financiers and the public owning their stock are also their stakeholders. The corporate responsibility report released by them every year underlines their duty towards their stakeholders. The key objective of Next plc is to act ethically towards its customers, maintaining a positive relationship with suppliers and taking maximum care of its employees. They fulfil their duty towards the general public by providing value added stocks to their share holders and acting with responsibility towards the environment and sharing their profit with many different charity organisations. They aim in fulfilling their the promise amongst various difficulties and challenges. The use various strategies starting from effective communication to improving the working conditions for the employees to meet their stakeholder objectives. When it comes to ethical trade policy, they ensure the suppliers are motivated towards continuous improvement and given the best possible price in the industry. They manage this by building efficient international supply chains. There is no forced labour or child labour in their company whatsoever. They provide fair wages a cording to the norms with all the government enlisted benefits for each employee. Job security, treating the employees with respect, flexible working hours and various other measures are taken to ensure the employees work happily in the Next plc. The customers are given innovative models at an affordable rate. The overall profit gained through efficient management is shared equally with every share holder. There were times, when Next neared bankruptcy in mid 80s. But, timely management changes and efficiency of new leaders ranks it among the top 3 public limited companies in the UK now. The UK Economic System The double dip recession which started from Q4 2011 and lasted till Q2 2012 hit the economy of the company quite badly. However, the country’s economy is in recovering state since then. The GDP of the country is growing steadily. UK economy will be the second enormously developing one by 2015. Various issues from problems in construction sector to decline in the overall manufacturing goods of the country pose major problems to the countries employment. However, the unemployment rate has reduced to 7.8% compared to the previous 8.1% in 2011 after 5 years. There are 14% houses living below poverty line in the UK. There is a steady increase in the number of these families too after recession. The private sector has created nearly 800000 jobs in the past two years owing to high government pressure. But, most of them are temporary and provide very low wages. The inflation rate of the company is steadily coming down and is currently stable at 2.9%. The difficult economic conditions of the company affect all the companies alike including Next plc. Their trading statement for the year 2013 states they are deploying various defensive business strategies to avoid wage inflation and the decrease in the profit. Next plc report their end of season sale was 8.2% less than the expected profit. The cash flow generated by selling goods directly was relatively good compared to other stores. But, the rising management costs, taxes and stringent regulatory measures have bought down the net profit. They aim in retaining as many employees as possible and concentrate on improving the stores coming under Next directory located in various developing countries to make up for the slow growth rate in the UK market. They also look forward to introduce the new space concept which will reduce the space of the actual stores and give maximum profit on the capital invested. Impact of government’s regulatory, Competitive and fiscal policies on Next plc The UK government debt is very high at nearly 64% of GDP. The government chose to retain their traditional British Pound instead of adapting to the Euro initially. Their sticking to the British pound is starting to pay off now. The UK government is able to sustain such huge debts because their exchange rate is very flexible. The fiscal policies of the government aim in bringing up various debt consolidation plans through their deficit reduction plan. They have reduced the trade deficit by 25% from 2010 to 2011. They were able to achieve good profits in exports by starting widening their markets beyond the EU horizon. Fiscal policies introduced by the banks like Funding for Lending Scheme and National Loan Guarantee System provides major boost for the SMEs. The government reduced the corporate tax to 24%. It is expected the taxes will go down to 22% within 2014. Such measures provide a great boost to major companies like Next plc. The Department of business, Innovation and Skills (BIS) was set up in 2009 to regulate the merger and acquisitions of various companies. The used the Competition Act 1998 and the Enterprise Act 2002 to curb certain companies gaining dominance in the market. Next plc purchased Lipsy in the 2008. It faced certain legal issues regarding the merger from BIS. But, it was quickly resolved. The main objective of all the regulatory and competitive measures taken by the UK government is to ensure fare trade among the various competitors and give quality products to the customers. Next plc’s objectives never clash with the government norms. Hence, there haven’t been any major issues from the BIS to Next Plc. On the other hand many UK retailers, approximately 140 of them are facing severe charges and problems from BIS. They are unable to run their business due to court judgements against them for failing to pay the fine and debts exceeding £ 5,000. How market structures influence Next plcs price and organisational response Customers do not have strong bargaining power against a particular manufacturer. But, their feedback can make retailers stand up strongly against them (). The role of major retailers like Next plc is important for the manufactures to reach the customers directly. The various market structures like Every country aims in creating a perfect competition or natural monopoly market structure. But, it is not that easy as various means of market structure like Monopoly, Duopoly and Oligopoly are prevalent in every industry. The UK market retail sector is evolving into Oligopsony where there are many sellers and one few buyers from the monopolistic competition where there were many firms each controlling a small part of the market. The buying power of the customers is reducing due to various monetary issues. But, the production power of the companies keeps increasing as cheap labour is available abundantly. This leads to Oligopsony. The regulatory measures of the government aim in controlling this at the right time because they might eventually lead to the failure of the firms in a few years. The 140 retail companies which have served as an important part of British entrepreneurship are being closed down unable to sell their excessive goods. But, huge companies like Next plc are always in search of new markets. They started expanding to markets outside the European Union. However the changing market trends keep affecting the pricing and the organisational responses of huge corporate companies like the Next plc. There has been a 15% dip in the overall price of their goods which leads to high operational cost. Next plc manages the same by cutting down the percentage of their profits rather than reporting total loss. They introduce various cost cutting measures in the administration like using less paper and electricity to manage the excessive cost. VAT influences the retail market directly and indirectly. The direct effect on consumer spending in the retail stores is minor considering certain goods like food products and apparels. But, they do affect the purchase of other products like house decorative items, furniture’s etc. Next plc experiences both direct and indirect effects as they sell apparels and footwear as well as household items. They redistribute their pricing strategy based on the demand for the goods. The business and cultural environment of Next plc The cultural environment of Next plc is very traditional. Though their fiscal policies and marketing strategies are very modern, they follow a traditional top-down approach in the organisational management. The decisions taken by the senior management is the passed by the managers to the employees working below them. They follow a standard service level throughout all their stores. They give ample importance to sticking towards certain defined processes. This helps them maintain the quality of the products and good customer service throughout all their stores. The business structure in the Next plc follows the TQM or Total quality management process. They aim in providing the best quality products and continuous development forever. Importance of International trade Global trade is very important for small and cold countries like the UK. The country depends upon Middle East heavily for energy and the other neighbouring countries for food products. They also need international co-operation to sell the goods produced in other countries. Manufacturing in other countries helps in the reducing the production costs too. Importance of international trade cannot be undermined for countries like the UK. In fact UK was one of the first countries to travel overseas to find new markets for their finished goods and this led to the discovery of the US. The importance of the inter-European as well as intra-European countries are vital for UK’s economy as exports play a major role in building up the countries revenue. Impact of Global and European Union Policies on Next plc The Euro crisis affected the Next plc like any other company. The sales forecast and the profits earned came down by a certain percentage. But, the global recession bought down the buying power of the customers significantly. The increase in unemployment severely restricted the public from spending lavishly. The Euro crisis affected the major expansion plans of many SME’s significantly. The banks refused to give further loans to them for expansion as well as maintenance. Next plc too did face major issues, which lead towards lowering of its shares price. But, they managed the loss by making use of the existing assets to introduce new low cost baby clothes brand as well as catalogue shopping in the United States. They managed the profits accumulated from the local stores into maintaining them for low profits. All their expansion plans and extra charges were managed by the profits gained from the overseas stores. Next plc too was refused further loans for expansion because of EU regulations. But, they managed to make use of the existing space in their stores to start new ventures adding more value for their capital. Conclusion Next plc is a major retail store serving more than 58000 employees. Their main aim is to provide proper job security and quality products to the customers. The company had faced many challenges in their 150 year long history. In fact they have overcome many recessions than any other company in the country. Their main competitors were the small companies as well as the major global players like Marks and Spencer’s. They have to tackle low price competitors as well as huge very high quality designer brands. Next plc managed this double attack through their immense foresight and great management strategies. They gave equal importance to their customers as well as their employees to achieve the same. References 1. 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