The only way to attain the successes the company has experienced in the past few years in terms of growth of sales and profits is to see what opportunities lie on the horizon. In order to identify these opportunities, the Marketing Department of Next Plc has performed a series of internal and external scans throughout the company.
This report contains an analysis performed on the micro and macro environment of NEXT PLC. The outcomes are presented in the form of a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of the company. Furthermore there is a focus on the environment that the company now is in by a PEST analysis (Political, Economic, Social and Technological) and a scan based on the Five Forces Model of Michael Porter.
Based on the data gathered by the Marketing Department, we have constructed a Mission Statement to provide the company vision and a sense of direction.
All the above mentioned activities are performed in order to create options for future strategies to expedite further growth.
The NEXT Company has been performing very well in the last years, sales have increased with more than 100% since 1995 and it increased 20% in the last year. If one looks at the competitors in the market: the department store Marks & Spencer and the Arcadia Group (formerly Burton), the sales outcomes are less favourable. You can conclude this by looking at table 1 and 2 down below.
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Next Plc is one of the innovative companies in the market and was one of the first to adopt and develop an Internet based home shopping branch as a high street retailer. Though competitors (Arcadia) also do business in this channel of retail, it is a highly lucrative way of offering products to customers and has a large growth potential (see table 5). Maybe one of the biggest advantages is the lower fixed cost that Internet selling brings with it because of reduced personnel cost and no shops are needed.
One of the strengths the company also has established is a good brand posture. The NEXT brand states individual style, good quality and value for money. Everything in the stores is labelled ‘NEXT' and no other brand is sold inside the stores, the brand is perceived by the audience as top quality for an affordable price.
1.2 W E A K N E S S E S :
Poor Planning
The Gross Profit level of NEXT PLC was lower than the previous year. One of the reasons we found of this occurring is that there have been higher stock levels throughout 1999 and there is an increased proportion of sales made at below full price level. (Daily Mail, City and Finance, 16 Sept 1999)
Expensive Currency
logo.gifThe expensive pound in contrast to other continental currencies will hamper growth in any main land expedition the company will be participating. The pound is expensive for continental customers and will prefer mainland stores such as ESPRIT and H&M. topesprit.gifOne can also see this in the company's results of the year ended January 2000: Sales in overseas stores are declining in turnover when reviewing the change throughout the year.
1.3 O P P O R T U N I T I E S
Consumer's preference: Large shops
In a recent inquiry, Mintel found that most people like to shop in large businesses with a big offer of different types and makes of clothing as you can see in Table 5. Especially men, prefer, when they go out for the purchasing of new clothing, to go to one shop that has it all instead of walking from the one shop to another.
E-Commerce
logo_skydigital_new.gifThe development of the home shopping channel in the form of internet and digital TV still is in its infancy and can be exploited more. However, one can see in tabel 5 that the online shopping sales are almost doubling every year.
People are buying more and more computers, yet the real opportunity lies not in this form, yet in the form of digital TV (see table 6 and 7). Almost everyone has a Televsion: 97%, yet not everyone has a computer 33% in 1998 with an increase of approximately 5% annually.
Expand Into new Target Group
The company could, as a result of the trend stated at the threat side of the SWOT analysis, expand into a new buyer group. In this way the company could use the threat of decreasing population of targeted age group as an opportunity. In order to reduce the dangers from reduced sales and get an extra benefit from the new people targeted, NEXT can open a shop under a new name or expand the product range in the existing stores.
1.4 T H R E A T S :
Over Crowded Market
The clothing retail market as well as department stores faces a highly competitive market. The market is overcrowded and still new entries are coming in from the main land (discussed later). Due to this costs rise and profit falls, for the companies have to make people aware of their products (as can be seen in table 1 and 2 of this report).
In the future, to make the market healthy again, there have to be some acquisitions. This must be done in order to lower supply. In combination with a stabile or weakly fluctuating demand, this will make it possible for companies to rise prices again and restore profit margins.
Population of Target Group Decreases
The number of people in the age group that is targeted is declining. This is due to the fact that the baby boomers of the fifties are almost at pension age and the trend of smaller families is sustaining.
The main target group of NEXT is people between 18 and 35 and as shown in table 5, one of the largest age groups (25-34) is moving out and as a substitute there is a 6.5% group moving in in the age category of 10-14. This will definitely cause reduced sales in the next 10 years and the retailers will have to look for another source of income.
The trend of price offs is ruining the market; reports of lower profit margins are coming from all the companies in the sector, as can be seen in the financials of the competitor companies at the beginning of this report. The price offs are an outcome of the fact of another threat; the market is overcrowded. Since NEXT has not had much trouble with the growing competition, this problem can hurt business seriously. If people get used to the price promotions, they will be reluctant to pay more for the product in the future and that means death for the market. One advantage of this occurrence is that it will drive out the unhealthy part of the market as Sears PLC, who was dismantled last year. (taken from Mintel)
Even after knowing the fact that the market is over crowded, the German fashion retailer ESPRIT wants to re enter the market after abandoning it a couple of years ago. ESPRIT is a company that has all the necessary traits of a company to enter the market, for it has a large capital basis, a lot of experience and can create economies of scale. Also with its brand it has a greatly differentiated product, which will create interest. (The Sunday Times 28 nov 1999)
The expensive pound relative to the continental currencies and the Euro has made it hard for British companies to expand into the continent. This brings a disadvantage and an advantage; UK products are expensive for continental citizens, yet the costs for the company are lower, because you get a lot of Euro's out of a pound.
Due to the European unification and the laws that came with it, the British government can not do much to steer the industry sector, for it will then be seen as an act against the monopolies legislation.
Also the reluctance of the UK to join the Single European Currency in an entrepreneur's point of view was not such a wise choice, looking at the possible as well as current economic and business related outcomes. Some international companies are pulling out or demand to be invoiced in Euro's.
2.2 E C O N O M I C
As stated at the threats for the company, the population structure is changing because of the ageing of the population. The concentration of the age groups will shift to an older one because of the tendency of smaller families.
People tend to be more active in the last few years and outdoor weekend activities are more popular than ever before. The population is more mobile. On there free time and is willing to spend more on the attributes concerning these activities such as clothing.
On the other hand there is also a trend that there is more need for casual dressing instead of the more formal requirements that used to be present at companies. The introduction of the ‘casual Friday' and home working makes this possible.
2.3 S O C I A L / C U L T U R A L
The consumer's spending budget has increased significantly in the last few years due to the upturn in the economy.
The ongoing trend of the last few years is the relaxation of dress codes throughout companies. A lot of corporations have adopted the ‘casual Friday' as a day where the dress code is less strict and there is no need for formal dressing.
Due to the fact that people are spending more time in leisure activities, demand for other fabrics and clothing was created that would suit their needs in their free time activities. Active leisure is more popular now.
The current technological advances in clothing are found in the fabrics that have entered the market in the pas few years. Focus is on comfort, in wearing and caring for the material. Popular are the multi- layered Gore-Tex and the flexible materials as Lycra. The advantage of these materials is that they are warm, light, thin, comfortable and easy to clean.
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Also the further development of the Internet and the relative ease that people can acquire clothing without having to leave their house is an interesting development in the market. More and more retailers are becoming multi-channel retailers by offering their services online. Examples of this are of course www.nextdirectory.co.uk , but also the grocer at www.Tesco.com and bookstores at www.whsmith.co.uk.
* The threat of new entrants is rather low, yet, as said before, the German ESPRIT company is trying to enter the market. This is an exemption, because ESPRIT has a lot of resources that make this possible as well as a lot of experience. In words of product differentiation they are in the league of Levi's and Benneton. These brands have as extra benefits: Image and superior quality.
* As we already know, the bargaining power of our suppliers is very low for there are a lot of companies supplying this market so substitution is easy (see table 10). The problem, however, is the quality we ask from our suppliers. Most of the suppliers only deliver into this market, yet can also change to other markets (professional clothing) that are less profitable and the level of competition is great.
* The products that can reduce our sales in the form of substitute products or services are not there, there is however a ‘threat' of Internet portals and other forms of home shopping. This is not a severe threat for the company already is active in this channel of selling. The discount retailing of A-brands as Levi's in outlets through parallel imports can be a problem.
* In the prospect of the consumers there is not much leverage from their account: their money spent on clothing per person is not substantial enough looking at our total sales and their total spending budget.
* There is some rivalry in the ranks of the market, for there are declining sales due to a decreasing market. In order to attain customer base, companies have increased their discounts and that leads to the destruction of the market. This is caused by the fact that people do not want to pay the full price amount of the products and companies will have to suffice with lower profit margins.
The company's philosophy is to offer quality fashionable clothing, accessories and furnishings for a good price. We can ensure good prices because of our knowledge of the market and by buying in large volumes. Next puts a lot of effort in ensuring and improving our service to our customers and we constantly seek new innovative opportunities to expand our business to fulfil the market needs.
The employees of next all work towards the same goal; providing the customer good value and quality in service in all the company's fields of business and build a prosperous company image.
The company has a strong drive to increase the value of the company and actively looks new ways to achieve this goal. We have made sure of this in the past and definitely will continue this trend in the future in order to increase shareholder wealth.
4.1 E x p l a n a t i o n
After careful examination of the company's features, we came to the Mission Statement above, to give the company a sense of direction. Referring to the book Marketing Strategy and Management by Michael Baker, we found that the following core points should be in a mission statement and we give a brief explanation how we inserted them
Company philosophy:
This is also directly linked to the other points that are included, for it provides the way the company wants to be seen: its image.
Concern for shareholders:
Shareholders are the providers of finance for a company and there is no activity before there are financial inputs for the company. In order to secure this in the future, when expansions are current issues, we need extra monetary incentives to achieve these goals. The part of the mission statemetn that deals with shareholder wealth is in line 7
Concern for Employees:
Employees are the most important part of the company for they are the direct link to your customers and represent the company. To give them a sense of belonging and a notion of what the company expects from them, the part in line 5 is included.
Customer care:
Next always seeks to give the price, value and quality products and services the upper hand when turning towards customers. This can also be seen in the way the company sees the importance of its personnel in relation to its customers.
Future objectives:
The company needs to look into the future and sees it as expanding into new (parts of the) market and improving the customer care by streamlining activities. It also wants to continue the trend of success it has had in the last 5 years
5. C O N C L U S I O N S & P R O P O S A L S
5.1 OPTION A: ENTER A NEW AGE GROUP WITH NEW SHOP
As stated in the SWOT analysis earlier on in this document, the target group of NEXT is decreasing in size due to the fact that the bay boomers are moving out. There could be a possibility to increase profits by entering this part of the market, as the CEO of Esprit, Heinz Krogner, says in the Times of 28 November 1999: ‘ The population is getting older but not in their attitudes. People do not want to look old, they want to dress young'[1].
People of older age are more established and have more money and free time. Also stated in this report that there is a propensity to tune your clothes towards the free time spending and that is another possibility to increase turnover and therewith profits.
5.2 OPTION B: GO INTO NEW PRODUCT AREA:
Search another product area, in which the target group is interested; during research, there was a statement in Mintel that one of the causes of degradation of sales was the fact that young people spend more on technology (mobile phones, sound carriers, etc). This addition to the product range offering, can create a ‘total package' and lift the product range of clothing and accessories to a new level.
Th problem is that we will be introducing different brands into our product offering and that will decrease the level of exclusiveness of our products, for we have only sold NEXT branded products so far.
5.3 OPTION C: INCREASE SHOP SIZES AND PRODUCT OFFERINGS:
In a report of Mintel, it concluded that men prefer to shop in the largest shops where there was everything on hand, so that they only had to go to one shop in order to buy the things they wanted.
If you increase shop sizes and hence increase the number and types of clothing and accessories, it will have a larger impression on the potential customer. Larger shops also create larger economies of scale and that brings on favourability in pricings looking at the competition and the need to lower our fixed costs
5.4 R E C O M E N D A T I O N S
As the marketing department of the company, we suggest that we expand our services as stated under option A.
Option B will bring a lot of disadvantages with it including staff training and more competition. For sure, the customer needs to be educated to know that the NEXT Company sells personal audio and other accessories.
As a disadvantage of option C we see that this will not generate that much extra sale, yet decrease our fixed costs. A company must not see reducing cost as their core objective when there is an opportunity to increase sales and create a base for further growth as stated in option A.
The number of people outside our regular target group will exceed the number in it in the near future (as can be seen in table 8) and that is why we need to be innovative and use this opportunity in our benefit.
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