Business Strategy 1

Strategic Management Report: NEXT Plc (Retail Clothing Business Unit)

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Executive Summary
NEXT Plc is a fashionable high-end retailer, which sells reasonably priced wear for sophisticated
men and women in the age bracket 20 to 40. The corporation as well offers home shopping as
well as financial services (NEXT, 2011). This report seeks to analyse the strategic management
of NEXT. The study is based on the competitive positioning strategy of the firm and the manner
in which it uses Porter’s models to obtain a competitive advantage over its rivals. This will show
the manner in which other organisations can attain competitive advantage in their particular
sectors. In doing so, the report will analyse the systematic classification of NEXT’s activities that
aid it to contribute positively and in an improved way than its rivals.
The basic idea behind conducting a strategic analysis on NEXT is to acknowledge and critically
analyse vital matters related to strategic management in corporations. The report is founded on
the study done on the internal and external environment of the firm. The findings found are
presented using the Generic Strategies (Differentiation, Focus, and Cost Leadership) to establish
the current strategic position of NEXT plc. The study is as well done by PESTEL (Economic,
Political, Technological and Social) as well as also a study using the Porter's five forces,
concentration on the present environment of the firm. The information collected in the study is
employed to create a report which will give the vision of the company and provide them a sense
of where they are heading to. The entire analyses stated above were performed so as to scrutinize
the current position of NEXT plc as well as to find more prospects for future strategies so as to
increase development.
From the Pestle analysis, this report highlighted the strengths, weaknesses, opportunities and
threats of NEXT and suggested the focus on new markets and increased product penetration of
the existing products to increase market share and profitability. From the Porter’s five forces this
report emphasized that the drive formed by industry competition resulted in an environment
where rivalry was based on strategies of focus and differentiation, whilst discouraging price
wars. From the generic strategies, this report suggested that based on the weakening global brand
perception and intensifying competition in the clothing industry, NEXT should pursue focus
differentiation which prioritises premium pricing and high quality perception of clothes.
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Table of Contents
1. Introduction..................................................................................................................................3
2. External Environment analysis....................................................................................................4
2.1 PESTEL Analysis..................................................................................................................4
2.1.1 Political Drivers..............................................................................................................4
2.1.2. Economical Drivers.......................................................................................................4
2.1.3. Socio-cultural Drivers....................................................................................................5
2.1.4 Technology Drivers.........................................................................................................5
2.1.5. Environmental Drivers...................................................................................................5
2.1.6. Legal Factors.................................................................................................................6
3. Porter’s Five Forces Model..........................................................................................................6
3.1. Threat of New Entrants.........................................................................................................7
3.2. Bargaining Power of Suppliers.............................................................................................7
3.3. Bargaining power of buyers..................................................................................................8
3.4. Threat of Substitutes.............................................................................................................8
3.5. Rivalry..................................................................................................................................8
3.6. Summary of the Porter’s Five Forces...................................................................................9
4. Value Chain Analysis...................................................................................................................9
4.1 Primary activities...................................................................................................................9
4.2 Support activities.................................................................................................................10
4.3 Summary of the value adding activities...............................................................................10
5. Porter’s Generic Strategies........................................................................................................11
6. Recommendation.......................................................................................................................12
7. Conclusion.................................................................................................................................12
8. References..................................................................................................................................13
9. Appendix....................................................................................................................................16
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1. Introduction
NEXT Plc is a Specialty retailer of fashionable clothing, home ware, footwear, as well as
accessories. The company was established in 1864 by a tailor of men wear Hepworth and son.
NEXT Plc has been in business for more than 150 years using its brand name NEXT which was
officially initiated in the market in 1982. NEXT Plc is known to distribute its products through
three key networks: NEXT retail, a chain of over five hundred stores in Ireland and UK; NEXT
Directory, a catalogue of direct mail as well as a transactional website with over two million
active buyers; and NEXT International, possessing over 200 stores in America, Europe and Asia
(NEXT Annual Report, 2010). The company also engages in other businesses such as NEXT
Sourcing, which sources, designs and purchases NEXT branded commodities, as well as Ventura
which delivers consumer management services to customers wanting to outsource their client
contact administration and self-actualizing activities.
This Report provides an overview of the clothing retail market in general and an in-depth
analysis of NEXT Plc comprehensively. The key emphasis in this report is the Retail division of
NEXT Plc since it is the key cash generator. In addition, it shows the present situation of NEXT,
its environment and the current development of the company. The report as well strategies and
approaches on how NEXT can improve performance and increase their UK market share.

2. External Environment analysis

2.1 PESTEL Analysis

A business’s external environment consists of elements which the firm has extremely minimal
control over (Lorat, 2009). These are mainly the political, economic, socio-cultural,
technological, legal as well as environmental factors as stipulated in the PESTEL analytical
framework (Porter, 2006).

2.1.1 Political Drivers

Political forces influencing a business define the political state present in a nation that have an
effect on businesses in that nation (Lei & Slocum, 2010). The effects of politics on businesses in
a country are dependent on the pre-stated business rules and regulations of the national
government. The regulations of government on matters like taxation have great effect on
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business processes. The recent 20% raise of VAT by the UK government led to more tax burden
on most UK citizens (BBC News Business, 2011). An increase in the VAT mainly discourages
people from spending and is thus, unfavourable to business firms like NEXT. This is founded on
the actuality that imposition of tax cuts a big portion of people’s total income thus decreasing
their powers of buying.

2.1.2. Economical Drivers

At the moment, the sterling pound is stronger when compared to the Euro. In regions where the
Euro is used, imports are encouraged as well as they endeavour to have domestic prices at an
appealing level (Berglof, 2011). However, on the contrary it is hard for the United Kingdom to
be competitive beyond its borders due to the high exchange rate of the sterling pound against the
Euro. Since NEXT sells around 96-percent in the UK market, this can presently only have a
minimal effect, however might be more essential when thinking internationally.

2.1.3. Socio-cultural Drivers

In terms of cultural and social factors of the environment the common consumers of the UK tend
to be loyal to a specific brand. Quality of the commodities is mandatory in each transaction
however could easily be overpowered by a fairly competitive strategy of pricing from a
competing brand (Bensoussan & Fleisher, 2008). Current observations also show that preference
on fashionable styles over the old styles tends to emerge among the UK buyers (Casson &
Giusta, 2007). This is witnessed in the case of NEXT over the years as it struggled to obtain a
bigger market share. This indicates that the UK buyer places high value on their money (Casson
& Giusta, 2007).

2.1.4 Technology Drivers

The population of the UK is currently into the consumption of novel technology (Barrow, 2011).
Novel technologies result in novel products as well as novel processes. As a response to the
traditional mail order catalogue, internet shopping has turned out to be increasingly popular
among buyers. NEXT has created way for other firms as its online store is extremely prosperous
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with over two million active users as well as a noteworthy part of the firm’s proceeds (NEXT
Annual Report, 2010).

2.1.5. Environmental Drivers

From the environmental point of view, climate changes, global warming, issues regarding
renewable energy, attention to clean energy as well as carbon footprint are some of the
environmental forces that require attention. The environmental policy framework of NEXT
embodies their obligation to finding efficient market-based solutions to deal with changes in
climate, degradation of the eco-system as well as other vital issues of the environment
(Cleanupfashion, 2008). Admirably, the organisation has made effort to maintain its carbon
discharges in its main plant. Their challenge is to achieve a reduction of 30% of the carbon effect
of its supply chain by 2020 and transform into a zero carbon business by 2030 (NEXT Annual
Report, 2010).

2.1.6. Legal Factors

In recent years in the UK there have been significant legal amendments that have had an impact
on company’s actions. Legal amendments may influence the demands and costs of a firm. The
industry has constantly been affected by issues like child labour laws as well as worker’s rights.
Labour laws affects NEXT in terms of managing their staff. That is, compensation benefits,
hours of working, and so forth. The Union workers at times picket their employers, particularly if
their medical benefits or pay are less favourable than for employees in similar sectors. NEXT has
joined the Institute of licensing where the institute aspires to improve, recognise and promote the
best practice on licensing for both the private and public fields (Next plc, 2009).

3. Porter’s Five Forces Model

The Porter’s five forces generic strategies help the business to contrast a competitive
environment (Porter, 2006). This model looks at five key areas namely, threat of substitute
products, bargaining power of suppliers and buyers, threat from new market entrants, and
competitors (Porter, 2009).
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Figure 1 showing the Five Forces that shape business strategy

Source: Porter, 2008

3.1. Threat of New Entrants

The threat of new entrants is low because of the high entry barriers. The obstacles to entry are
caused by the fierce competition in the clothing retailers market, thus, the cost of penetration in
this market are extremely high. Further, the market is crowded with both global and local
retailers (Zinkan, 2012). Present retailers, particularly in the premium category turn out to be
increasingly established and it is in result more complex for a novel retailer launch (Popham,
2011). The threat faced by NEXT are the new rivals from the big trade names, chain of
companies or department stores. Corporations like Donna Karan and Calvin Klein for instance,
possess knowledge, as well as the finances to penetrate the industry.
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3.2. Bargaining Power of Suppliers

The bargaining power of suppliers in the clothing sector is said to be relatively low however,
when purchasing clothes from luxury designer companies, the bargaining power is higher. In the
case of NEXT the bargaining power of suppliers is limited since there are a lot of suppliers in
this sector. NEXT had previously had only suppliers from Britain for its said reason of high
quality, however, later on it sourced internationally so as to lower their cost. NEXT was no
longer dependent on specific suppliers and as a result the bargaining power of suppliers is
decreased (Thompson & Martin, 2010).

3.3. Bargaining power of buyers

The bargaining power of buyers is quite high in the clothing sector because most firms provide
their goods at relatively same prices (Doole & Lowe, 2008). Therefore, the success of each
commodity relies on the marketing approach of each firm. Aggressive marketing results in the
increased volume of sales. Since there are numerous clothing firms in the industry, the only
manner to draw customers to purchase a firm’s goods is by adding value like elegance quality, or
through lowering prices.

3.4. Threat of Substitutes

The threat of substitutes is low although styles change, clothing is a necessity. Manufactures and
retailers of clothing do not face considerable threats from potential substitutes within the
predictable future (Zinkan, 2012). A sweater may be substituted for a coat, or skirts for trousers,
however, because NEXT is the provider of all these goods, the impact of substitution is limited.
Nevertheless, the threat in this sector is if NEXT fails to recognise the on-going trends then
buyers may substitute NEXT with a company that is trendier.

3.5. Rivalry
Competitive rivalry in the UK is extremely high in the market of clothing retailers. NEXT faces
severe rivalry from H&M, Debenhams, and Marks and Spencer, where H&M, and Debenhams
have a similar target market as NEXT (Market line, 2006). In addition, NEXT as well faces
rivalry both from firms that offer expensive lines like Monsoon and French Connection and firms
that offer cheaper lines such as ASDA, Tesco and Primark (Doole & Lowe, 2008). Also, the
development of emerging rivals such as ASOS from the US into the high market in the UK with
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the novel introduction of designer ranges of children which are mainly the strength of NEXT has
posed great competition to the firm. NEXT possesses an extremely strong position as far as
online shopping is concerned. However, foreign retailers such as Mango and Zara have been able
to establish themselves in the UK market and NEXT these days face even stronger rivalry
(Market line, 2006). The buyers shop for more recognised and respected like Gap and Prada.

3.6. Summary of the Porter’s Five Forces

Having employed Porter’s five forces model to the clothing industry environment faced by
NEXT, a conclusion may be rationally derived with respect to the proportional impacts of each
of the factors on the rivalry within the Specialty clothing industry. It can be summarised that the
drive formed by industry competition resulted in an environment where rivalry was based on
strategies of focus and differentiation, whilst discouraging price wars. The bargaining power of
both buyers is high due to the concentration of retailers around one place. On the other hand, the
bargaining power of suppliers is minimal as a result of a large number of suppliers. Similarly, the
threat of substitutes is insignificant.

4. Value Chain Analysis

The value chain of a company is described by Porter as an instrument to identify the integral
capabilities of the company to recognise its competitive advantage (Johnson et al., 2008). The
following is an analysis on the primary and support activities of NEXT.

4.1 Primary activities

NEXT’s global operations comprise of over 200 stores in America, Europe and Asia. These
outlets are set up in similar ways and they provide a huge variety of goods (David, 2006).
Operational effectiveness is vital to the whole success of NEXT as well as promises well for a
greater customer service. By putting up stores in a similar way, NEXT obtains greater control
that may be maintained at the corporate level nevertheless individual outlets are permitted and
encouraged to make changes with reason.
NEXT is engaged in the direct selling of clothes, both online and in stores, provision consumer
management services as well as property sale. In the same way, the firm is as well engaged in the
distribution of their products to all the NEXT stores across the UK (NEXT Annual Report,
2010). These basically are the outbound logistics of the firm. Furthermore, sales and marketing
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of the firm appear to be one of the highlighted features in the firm. With the intense rivalry
existing in the clothing sector, vying for buyers favour and increasing value of the line requires a
higher measure above the other primary activities. In terms of service, the firm as well has to
cope with the maintenance of their stores (NEXT Annual Report, 2010).
There are places where NEXT has acquired store that require maintenance, this is where the
activity of service occurs. NEXT places extra importance on its key business objective i.e. to
serve its buyers’ needs competently as well as with a personal touch. Its managers are seen to
spend more time on the stores, listening to their clients and staff members, in that way allowing
them to make decisions seeking to satisfy the needs of target clients. By employing a
decentralized strategy (focuses on the sales and production of products from different locations)
to its operations, NEXT delivers on what it views as its fundamental value offer to its buyers i.e.
superior service.

4.2 Support activities

NEXT is committed to investing in their staff members, which they feel is their ultimate
competitive advantage. The firm values its staff members and regards them as key stakeholders
in the business. NEXT’s management considers that when all the needs of staff members have
been handled effectively then they will do their role in delivery of quality services. Additionally,
NEXT’s leaders like its CEO believe that all staff members must feel valued. Compensation
strategies like employee stock ownership and performance bonuses plans aid in retention of staff
members as well as credit plans and stressing an open-door strategy with management
(Stonehouse et al., 2004).

From a technological point of view, NEXT encloses both external and internal issues to handle.
External matters with regard to product development and enhancement, R&D and patenting may
be viewed as largely a supplier based concern. Although most of that problem is on the suppliers,
there are a lot of internal technological matters particularly in Information technology.
Development in the technology unit is certainly an area of development opportunity as well as
positioning within the whole clothing sector.
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4.3 Summary of the value adding activities

The value chain has described the activities that occur in NEXT and has related them to the
competitive strength of the corporation. The value activities of NEXT are effective in that the
coordination between its secondary and primary are strategically managed, causing the creation
of added value to its products or brand. Its outbound and inbound logistics activities, service,
marketing and operations are supported with an effective corporate management planning,
technological development, human resource management, as well as procurement activities. For
instance, the setting up of NEXT stores is well planned. Every location is well studies, taking
account of seemingly irrelevant particulars like flow of traffic, the demographic nature of an
area, the density of people, and keen selection of workers to be stationed in each outlet (Clark,
2007).

5. Porter’s Generic Strategies

There are three fundamental forms of competitive advantage a company may have low cost and
differentiation. The three generic strategies for attaining above average performance are: cost-
leadership, differentiation and focus (Jackson & Shaw, 2009).
NEXT prides in providing quality, consistency of style, as well as value for money along with a
modern fashion edge for their aimed market. The company has been employing a differentiation
strategy which has enabled them to attain dominance over other industry players. NEXT has
differentiated their commodities from their rivals in aspects like design, style, quality as well as
value for money (Market line, 2006). On the other hand, in this ever changing clothing sector
nothing is said to be everlasting.
Further, clothes designed and produced from NEXT Plc, the company can guarantee that both
quality and value contributes to the difference from its rivals. NEXT is directly concerned with
every step of operation procedures like looking for the best fabric suppliers such as silk from
Japan, and Cotton from Egypt to be used in its clothes production. NEXT has strived to select
high quality fabrics by providing activities and the treatment of personnel that help in improving
the product. Additionally, the controlled processing of the farm as well as the company experts
ensures the resulting products reach the company standards.
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Although NEXT has prospered in the clothing industry, it has as well the risks associated with
the differentiation approach. Differentiation strategy may lead to the risk that relate with
limitation by rival companies as well as changes in consumer tastes.

6. Recommendation
With reference to differentiation strategy, NEXT has to create differentiation of its commodities
to compete with its rivals. As a result, this may affect the pricing of products which can be higher
than the competitor since the firm has to set a premium price to cover all investment costs.
NEXT should lay emphasis on the delivery of products to its consumers in the best achievable
manner. This is an extremely vital way to increase profitability as well as to obtain a competitive
advantage in the market. In this case, buyers have to obtain the goods that they buy in sufficient
ways like delivering current, stylish high quality clothing to the buyer along with a reasonable
competitive price.
As a result, NEXT can apply focus strategy that centres on a narrow target market and make an
effort of producing unique products. For instance, initially when NEXT was established it
targeted male consumers aged 22-40 years with slightly above average level of income. After this
original target market NEXT has since noticed that they could enlarge their target market as well
as target particular environs and social groups. Different buyers are more willing to pay more for
a quality product. With that in mind, through the aggressive enlargement strategies of NEXT
they have started targeting almost all ages.

7. Conclusion
NEXT is an illustration of the manner in which a boat can be navigated through waves and
storms. When a big number of its rivals struggle from the deteriorating market, NEXT achieved
to raise its market share for the past 6 years. As a result of higher sales the company was able to
increase its dividends which had a positive impact on investors as well as stakeholders.
NEXT is well positioned in the market of UK and extremely elastic to respond to customer
desires. They formulate within a short time frame and money a fast and stress-free solution for
those clients who wish to order through the internet. Already they are the sole enormous UK
clothes retail corporation who makes money with e-business.
The above studies and proofs clearly display that NEXT PLC has put up a strong name in the
retail market of the United Kingdom. Regardless of strong rivals, tough economics, hostile
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circumstances, as well as social rethinking, NEXT has employed its powerful minds, constantly
forward-moving developments of enhancement, as well as high standards of quality to triumph
over these difficulties. There is a necessity for NEXT to develop its processes on its operations,
inbound logistics, suppliers, and layout, store designing, plus a lot more. Furthermore, it is
recommended for NEXT to make good use of information technology systems to enable smooth
and fast running services to its buyers and suppliers. Actually, NEXT is already taking measures
on the same manner. It is to be anticipated that as a result of this model NEXT will reclaim its
competitive advantage soon.
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8. References
Barrow, C. (2011) Starting a business for dummies. Chichester: John Wiley.
BBC News Business (2011) VAT rise from 17.5% to 20%. Available at:
Bensoussan, E., & Fleisher, S. (2008) Analysis without Paralysis: 10 Tools to Make Better
Strategic Decisions. Canada: Pearson Education.
Berglof, E. (2011) ‘A European Perspective on the Global Financial Crisis; Corporate
Governance’, International Review, 19(5), pp. 497-501.
Casson, M., & Giusta, M. (2007) ‘Entrepreneurship and social capital: Analysing the impact of
social networks on entrepreneurial activity from a rational action perspective’, International
Small Business Journal, 25(3), pp. 220–244.
Cleanupfashion (2008) NEXT Plc. Available at: www.cleanupfashion.co.uk (Accessed May 20,
2013).
Cunningham, J. & Harney, B. (2012) Strategy & strategists. Oxford: Oxford University Press.
David, F.R. (2006) Strategic Management: Concept and Cases. New York: Pearson Education.
Doole, I & Lowe, R. (2008) International Marketing StrategyAnalysis, Development and
Implementation. England: Cengage.
http://www.bbc.co.uk/news/business-12099638 (Accessed May 20, 2013).
Jackson,T., & Shaw, D. (2009) Mastering Fashion Marketing. Journal of Business and
Economics.
Johnson, G., Scholes, K. and Whittington, R. (2008) Exploring Corporate Strategy: Text &
Cases, 8th Edition. England: Pearson Education Limited.
Johnson, G., Scholes, K. and Whittington, R. (2009) Fundamentals of Strategy. England: Pearson
Education Limited.
Kotler, P. (2004) A three-part plan for upgrading your marketing department for new
challenges. Strategy & Leadership, 32(5), pp. 4-59.
Lei, D, & Slocum, J. (2010) ‘Strategic and Organizational Requirements for Competitive
Advantage,’ Academy of Management Executive, 6(18), pp. 34-47.
Lorat, N. (2009) Market Audit and Analysis. Norderstedt: Books on Demand GmbH.
Market line (2006) NEXT www.datamonitor.com.
Next (2011) Next – About us. Available at: http://www.nextplc.co.uk/nextplc/aboutnext
(Accessed May 20, 2013).
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Next Annual Reports (2010) Annual Report. Available at: http://www.nextplc.co.uk/financial-

information/reports-and-results/Archive.aspx (Accessed May 20, 2013).
Next plc (2009) Corporate Responsibility Report. Available at: http://next.co.uk/ (Accessed May
20, 2013).
Popham, J. (2011) Transformative Assessment in Action: An inside Look at Applying the
Process. Journal of Marketing, 5, pp.7–73.
Porter, E.M. (2008) ‘The Five Forces that shape strategy’, Harvard Business Review, pp. 78-93.
Porter, M (1980) Competitive Strategy, Michigan: Free Press.
Porter, M. (2006) ‘The Five Competitive Forces That Shape Strategy’, Harvard Business Review,
pp. 80-94.
Porter, M. (2009) Exploring Corporate Strategy. New York: FT Prentice Hall.
Solomon, M., Bamossy, G., Askegaard, S. & Hogg, M. (2009) Consumer Behaviour in Fashion.
Oxford: Oxford University Press
Stonehouse, G, Campbell, D. Hamil, J, & Purdie, T. (2004) Global and Transnational Business:
Strategy and Management. Hoboken, NJ: Wiley.
Thompson, J. L, & Martin, F. (2010) Strategic management. Andover: Cengage Learning.
Zinkan, E. (2012) Advertising Research: The Internet, Consumer Behaviour and Strategy. UK:
Marketing Classics Press.
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9. Appendix

1. Porter’s Generic Strategies

Source: Porter, 1980

2. Value Chain

Infrastructure

NEXT company’s legal, financial and management structures are all designed to
ensure efficient business processes
HRM
Well-built commitment to investing in their staff members, which they feel is
their ultimate competitive advantage.
Technology Development
R&D team set up by the corporation to put the NEXT retail unit head-to-head
with current technology
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Procurement
The corporation sources for quality in terms of raw materials obtained within and
from foreign countries.
Inbound Operations Outbound Marketing & Services
Logistics Logistics Sales
Marketing is
Raw Manufacture of done with NEXT offers
materials clothes Distribution is emphasis on after sales
acquired done by the the 7Ps market services such
from within company to mixes; as door-step
the States various retail company also deliveries
and In outlets carries out
foreign advertising
countries campaigns

3. PESTEL Framework
Political Economic Socio/Cultural
 Increased  European credit  UK populace
VAT affecting crunch keen on product
 Global financial customization
people’s incomes. and
 Political stability providing a crises personalization
conducive business environment
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Technological Environmental Legal

 Global businesses tending towards  Business  UK government
e-commerce encouraged to adopt supporting business
 UK populace into the consumption sustainable production practices
of new technology  Labour Laws
practices

4. Porter’s Five Forces

New Entrants

High threat of entrants

especially big label
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companies

Suppliers Competitive Rivalry Buyers

Suppliers have low Stiff competition due to Presence of substitutes

bargaining power due to numerous retailers in the affords buyers a high
the presence of numerous UK bargaining power
suppliers

Substitutes
Low threat from substitute
products since they offer
almost all the brands