2.1 The Market
2.2 The Company
3.1 PEST - Analysis
3.2 SWOT - Analysis
3.3 Competitive Analysis
6.1 Good quality and price
6.2 Relationship between Next and its environment
6.3 Shopping as en event
1 Introduction
This Report should give the reader an overview of the clothing retail market in general
and an in-depth analyse of NEXT Plc in detail. The main emphasis in this essay are the
Retail and Directive division of NEXT Plc because they are the cash generators.
Furthermore it shows the current situation of NEXT, its environment and the recent
development of the company. The report also provides a mission statement and
strategies how to be more successful in the near future.
2 Overview
2.1 The Market
The UK clothing market is a declining market. The clothing industry is beset by
competition from companies which have invested in hi-tech machinery leading to
greater efficiency or have moved their production to factories in cheap labour cost
countries to produce their products. However, most companies in this sector make only
moderate profits. To expand the market share in this arena is not easy, and therefore it
needs a great deal of endeavour, knowledge, as well as energy and money.
Clothes retailers fall into two broad categories: firstly, those selling own-brand clothing
and, secondly, those selling third-party wear. Major retailers such as Marks & Spencer
and the Arcadia Group are good examples of the first group, as are chain operations
such as NEXT and Gap. The second group includes the major department stores and the
majority of independent retailers in the UK.
Clothing retailing is a highly diverse industry. The retail sector ranges from low-cost
and discounts retailers through to independents, sportswear, formal wear and highly
exclusive designer boutiques. However, as in most consumer goods markets, it is at the
middle level where the major players are to be found and money can be earned.
2.2 The Company
The history of NEXT goes back to 1864 when it was founded by J. Hepworth & Son
under the name of Gentleman's Tailors. In 1981 Hepworth bought the chain of Kendalls
shops to establish a new Womenswear group of shops. This was the birth of NEXT.
NEXT Plc is a trendy high street retailer which sells moderately priced clothing for
stylish women and men in the age range 20 to 40. The company also provides home
shopping and financial services.
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.
NEXT Retail accounted for 69% of the fiscal revenue for the year 2000 ; NEXT
Directory, 19%; Ventura, 9%; NEXT Overseas, 1% and other activities, 2%. More than
96% of sales were achieved in the UK market.
Taking an up to date snapshot of the current situation of the Company, it is quite a
success story. NEXT nearly tripled their sales during the last six years, Source: see
Chapter 7 from GBP 544 m (1994) to GBP 1430 m (2000) and dividends have increased
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3 Analytic Tools
3.1 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
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. Fig. 2
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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.
Source: see Chapter 7 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 decis ive factor as to whether a company
is ahead of his competitors or whether it lags behind.
3.2 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 interne t 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
become 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.
3.3 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.
Fig. 3
Porter's Five Forces Model
Bargaining power of suppliers
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Source: see Chapter 7 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 cons umers 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 is 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 make 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.
4 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.
5 Mission Statement
A mission statement should provide focus for goals, clarify issues and outline visions
and objectives. It needs to communicate the essence of the company to the employees,
shareholders and to the public (Hassan, M 1988). Similar to this, Doyle (1998) points
out, that a mission statement describes the purpose of the business and its essential
Without a statement it is like the Cheshire Cat in Alice in Wonderland who said, "If you
don't know whe re you're going, it doesn't matter which way you go."
One example of a mission statement for NEXT Plc could be:
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.
This statement indicates that NEXT relies on its core business as a basis for further
enlargement. Furthermore the management is marketing orientated - customers are top
priority and should be satisfied as often as possible speaking of clothes as of services.
The stores should be easy to reach to attract new customers whose intention was to shop
elsewhere rather than at NEXT. Because the "green issue" is getting more important
everyday it should be one of NEXT main concerns. The product itself must satisfy the
customer speaking of quality and price to generate customer loyalty in the long run. The
employees are the soul of a company. If employees are well motivated and committed
to their jobs, they can surmount every obstacle. In increasing market share NEXT is
improving its negotiating position with its suppliers which in turn is likely to lead to an
increase in profit margins. As a result NEXT will become an attractive investment
proposition which will lead to strengthening of its capital base.
These are the pillars of success and will lead NEXT to increased sales and shareholder
6 Objectives and Strategies
6.1 Good quality and price
This is the key factor for success. But how can this objective be achieved? One
possibility is to look for a supplier who is located in an emerging market to participate
at the low labour costs. However this country should have a clothing manufacturing
background, for example India, Turkey or Hong Kong so that it is easy to recruit well
trained employees. Furthermore should the supplier be a part of the production process
so lean management could be implemented and stock capacity reduced. A quality
officer from NEXT should be at the suppliers at all the time to guarantee the high
quality of clothes. To lower the costs and to gain a better trade position - suppliers
should be reduced to a minimum and therefore new price conditions negotiated. This
can lead NEXT to low costs and high quality in the long run.
6.2 Relationship between NEXT and its environment
As it was mentioned at the PEST analysis - the green issue is gaining greater importance
and NEXT should strive to make further progress in this direction.
There are two tracks which should be followed. First of all the production process.
NEXT should guarantee that the plants are environment friendly.
In other words that the factories are equipped with up-to-date filters which reduces
erosion and the used chemicals are biological decompositioned at all times. Another
issue is labour force - 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. The second track 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. So money can be
saved and the environmentally awareness be sharpened.
6.3 Shopping as en event
In this segment where market shares are mostly gained by price competition it is vivid
to be special. One way to make shopping as an event and therefore add value for
customers is to have superstores. Everything should be generous. Starting with shelves
to corridors to customer care and service in general. Nothing should be omitted to
satisfy the customer - he is king.
So NEXT should close their smaller branches and replace them by superstores. They
should offer special services like make-up studio, clothing consulting stations or child
care. Also small events like fashion shows, autographing sessions or book reviews
could be helpful to attract new customers and make them enjoy their shopping. NEXT
should also provide a resting place where husbands or other not actively engaged in the
shopping process can sit, relax and drink a cup of cafe.
A strong brand, good service and all the other strategies which are mentioned above
should lead automatically to the main aim "double digit growth" and an even better
market positioning for NEXT Plc in the near future.
7 Bibliography
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)
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3. Porter, M (1980), Competitive Strategy, Free Press
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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,
Milne, S (October 27th, 1999), `M&S target of child labour claim', The Guardian