Porter's Five Forces Analysis of NEXT Plc - Case Study Example

Business Analysis NEXT d 28th November 09 Introduction: Porter's 5 forces analysis of NEXT is related here with the micro-external environment. They consist of those forces close to the company that affect its ability to serve its customers better and make a profit. A change in any of the forces normally requires the company to re-assess the marketplace. Five forces that determine the competitive intensity and attractiveness of a market are bargaining power of customers, bargaining power of suppliers, threat of new entrants, threat of substitute products and intensity of competitive rivalry affecting NEXT. NEXT Plc is retail chain in Clothing specialising in Men's wear, ladies wear, Sports wear, Leisure wear, Children wear. Underwear Swimwear Footwear watches etc. NEXT products are highly trendy which sells at moderate prices. Clothing is targeted on stylish women and men in the age range 20 to 40. Home shopping and financial services are also provided. NEXT operates through 300 high street shops covering the UK and Ireland and also foreign markets. (http://www. next.co.uk) The clothing market of UK is declining at present. Clothing is generally manufactured by low tech machines with cheap labour spread in third world countries. The industry is facing competition from high-tech machines that can stitch better quality products at faster speed and at lesser cost. Retail shops thrive in the market to sell these clothing. The market trend today is of opening retail chain stores and capturing the market with own favourite brands such as Next, Marks & Spenser, Gap, and Arcadia. These retail chain stores grow big and can afford costly high-tech machines but small retailers can not afford quick change to new technology. Highly exclusive designer boutiques cater to rich segment with exclusive designs. But consumer goods markets mainly thrive on middle class segment and therefore every big retailer concentrates to that market. . Other activities of NEXT include telecommunications software services and property management. Analysis of NEXT plc and its environment... Environmental Opportunities NEXT Retail accounted for the biggest 69% of revenue in 2000. More than 96% of sales came from the UK market. NEXT is ranked number one in the market in high street category and in providing mail order facility to youth group in 20-40 age. It is very difficult for the competitors to enter into the segment and grab the market share. Environmental Threat : In spite of its well-entrenched position in the market there are some big brands like TESCO which is trying hard to snatch the market share by offering clothes stitched fro the low labour cost areas at dumping prices. Lewis 501 denim product at pound 20 is a burning example. Bargaining power of suppliers: Suppliers in clothing industry are many and this is true for NEXT also. Supplier can be indispensable only when he holds monopolistic status. In case of NEXT's suppliers they don't enjoy such position and can't pull the company for increasing rates or other terms unless it is negotiated and accepted. Bargaining powers of Buyers: Buyers or customers have lots of power to discard a product in the shelf. In the modern world of marketing it is the value creation through brands, promotion, prices tags, product positioning, label, quality and store's image that retain clients. Generally clients don't bargain prices from a good outlet and believe to pay the tag prices accepting the quality of goods therein. NEXT has good image to project and should not expect consumers' reprisal unless the brand loses its value. Threat of new entrants to the industry Small brands are not capable to enter into the clothing chain market to compete with NEXT because of the capital- intensive nature of the modern clothing industry. Big labels do have strength of money, knowledge, expertise and marketing power to challenge NEXT. Donna Karan, Calvin Klein, Tesco, Marks & Spenser or some other brands from US can enter the market comfortable by opening stores in the up market of UK streets. Already US catalogue retailer is venturing to enter UK. Land's End which is a big mail-order company of USA opened outlet in UK but languishing perhaps because of the current recession. . Threat of substitute products or services In clothing business there is hardly scope of substitute products threatening the product because no such real substitute exist. All those products which can be substitutes are carried by NEXT also. It is not the substitutes but an innovative style from competitors kitty that becomes the attraction for customers can take away clients.. It is generally observed in clothing markets that small niche player with its innovative design attracted consumers away but it can't be a long term phenomena. Rivalry among current competitors In market place rivalry among competitors is a common phenomenon. The reason behind this rivalry is the limited market place and so many stores dealing in the same stuffs. UK has about 30,000 retailers in clothing segment. Price cuts are often noted directly or through discounts to attract customers. Every big stores offer this type of opportunities in any garb it can. It can be combo offer, or reduction of contents in the sachet followed by price slash or 'buy one and get one free' offer and so on. NEXT also practices this. NEXT has to face the same treatment from its competitors. Overall it is the service and image that matters and not just the price cuts to attract and retain customers. 'NEXT' linked its clothing labels always with trendy designs and fashion with good quality image and price. This sustained the company aloft in the tough business environment. 'NEXT' increased its market share due to high sales. They could increase their dividends which had a positive effect on shareholders and investors. They are highly flexible to understand and adjust with customers' grievances and change to accommodate to their needs. (Analysis of NEXT plc and its environment...) Bibliography Hausarbeiten.de - Analysis of NEXT plc and its environment... www.hausarbeiten.de/faecher/vorschau/99429.html http://www. next.co.uk http://www.coursework4you.co.uk/generic.htm A Competitive Analysis And Strategy, www.fao.org/docrep/W5973E/w5973e0a.htm Porter, M.E. "Competitive Strategy". New York: The Free Press, 1980. 2. Porter, M.E. "The Competitive Advantage of Nations". New York: The Free Press, 1990. ... Lynch, R (1997), Corporate Strategy, Financial Times Management, London Wilson and Gilligan (1998), Doyle, P (1998), Marketing Management and Strategy, 2nd edition, Financial Times Prentice Hall, Harlow Strategic Marketing Management, 2nd edition, Butterwoth Heinemann, Oxford Porter, M.E. (1980) Competitive Strategy, Free Press, New York, 1980. 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