CHAPTER SIX: CASE STUDY – NEXT
- CASE STUDY- NEXT
Next Plc. is a multinational retailer, which offers an extensive mix of men’s, women’s and childrenswear of a wide age range. It is also growing, successfully in its homewares business, which accounts for around 10% of its total sales (Mintel, 2013). It is considered to be ranked 2nd in the UK clothing market, but one of the most progressive multi-channel retailers in the country.
The company was found in 1864 with its headquarters situated in Enderby. The operation of the company is being carried on in more than 700 stores across the globe, such as in UK, Ireland, Asia, Middle East and Europe (see figure 6.1). The company has three major chains of operations: Next Retail which is a chain of more than 500 retail branches in UK and Ireland, Next Directory which is the website and serves as home shopping catalogue with more than 3 million customers who are active and Next International with more than 180 international stores (Silvis 2013). The company was first of all operating only in physical stores but in the year 2009, it opened up its online website, Next Directory, which enabled the customers to buy all of its products through the website.
According to the annual report of 2010, the profit of NEXT directory was £183.6 million as compared to £157.6 in the year 2009 millions (NEXT Annual Report 2010). The moment NEXT integrated its physical store presence with online marketing; the sales of the company have increased at a considerable rate. This can easily be shown with the help of the financial statement of the company for the past 3 years
In the annual report and accounts for January 2014, the Chairman, John Barton stated that, “The year to January 2014 was a great year for NEXT. Underlying earnings per share grew by 23% to 366p and we propose to increase our full year ordinary dividends by 23% to 129p in total.
This is the fifth consecutive year that our earnings per share and ordinary dividend have grown by over 15%” (Next’s Annual Report, 2014). This shows that the business has made considerable progress. As can be also noted by the rise in Next Directory by 12.4% and in Next Retail by 1.7% the year ending Jan 2014 (see figure 6.3).
Next’s financial statistics are a proof to showcase that the two businesses are complementary and support each other in an effective and efficient way. Operating margins in both businesses increased during the year. The Group’s underlying profit before tax rose 11.8% to £695m (Next’s Annual Report, 2014).
Moreover Next Plc. has positioned itself as one catering to the middle mass market of the 25-45 age range. It is a value based fashion retailer on the rise to achieve constant competitive advantage. To get a clear understanding of the ways and means and the forces at work through which NEXT has been able to get more customers and sales, the way in which Porter’s Competitive Advantage Model is applied in the company needs to be studied. The model is shown as under-
This model has helped in providing a competitive advantage to the company. The position of any company in the market is an important factor which helps in determining the profitability of the company over its competitors within the same industry. Company can take either of the two methods for gaining competitive advantage: differentiation or low cost. NEXT Plc has applied these two factors to gain a competitive advantage over the competitors. These two factors were further combined with the various scopes of activities of the company. This combination further led NEXT to achieve three generic strategies in order to achieve the above average performance in the same industry (Flinch 2000). These three generic strategies were differentiation, focus and cost leadership. Focus further included two variants- differentiation focus and cost focus.
NEXT has taken every possible effort to come up such products which have low cost than its competitors in the markets such as Monsoon (Binns 2012). The technology used in manufacturing the products was utilised fully and the raw materials required for manufacturing products was also bought and used with optimum utilisation. NEXT then took every effort to find and then exploit the various ways of cost advantage. This certainly helped the company in sustaining the cost leadership advantage over the others. Differentiation is another factor where the management people at NEXT emphasised more. The main aim of the company was to be unique in some or the other way which can provide some value to the buyers. The website of the brand is also designed in a very attractive manner. The method of surfing and purchasing is very easy and convenient for the customers. The stores of NEXT have attractive ambience and the sales people are very polite, humble and warm
(Milne 2009). This uniqueness has helped NEXT in attracting the new customers and retaining the old buyers at the same time. The factor of focus talks about targeting a certain group of customers who should be focussed upon. Their needs, choice, wants and preferences should be understood and products and services should be tailored accordingly. The main customers of NEXT are the youngsters. The company in terms of their trends, style and fashion takes this segment due care of. This niche market of this young group is catered well by the marketing experts at NEXT Plc, on both, online and offline platform (Mahmoud 2013). NEXT has very conveniently and easily adopted porter’s competitive advantage model in the company to enhance the performance of the company which has led to greater profit and sales.
Future Growth and Developments
Next has continued to make good progress developing its internet business overseas. Next’s international online sales grew by 86% and contributed 3.9% to Directory growth. All its overseas sales are currently serviced from the brand’s UK warehouses through third party distribution networks. However, a £100m turnover is still fairly small and it would be a mistake to undervalue the importance of international expansion. Additionally if, as Berman and Evans (2010) suggest, saturation is contributing to slow growth, market development is deemed suitable as it “involves offering existing products to new markets” (Johnson, Whittington and Scholes, 2011:235), thus supporting international expansion as a strategy for growth.
It is stated that retailers “must [now] strive for profits and growth in a world economy” (Root, 1994:1,2). Technology developments are one of the several factors that are said to have “altered the landscape of international retailing” (Evans et al., 2008:261) notably the growth of Internet. Furthermore, the macro environment increasingly facilitates international trade as a result of “the lowering of trade barriers” (Evans et al., 2008:261).
The motivations for retail internationalization have been the focus of a wide variety if academic literature. Arguably the most notable and respected of these theories is the work of McGoldrick (2002) who coined the concept of Push and Pull factors. These are the factors that push a country out of their domestic market and pull them into another; he highlighted these as motivations for retail internationalization.
Push and Pull factors Push and pull factors are a popular explanation of the elements that may influence a retailer’s decision to expand internationally (Alexander and Doherty, 2009). Consequently these factors are frequently presented in the literature relating to the international expansion (examples include McGoldrick, 1995; Alexander, 1990; Treadgold and Davies, 1988; Treadgold, 1989; McGoldrick, 2002; Kacker, 1985).
Push factors contribute to the limited sales potential in the home market, resulting in a retailer looking to international markets for sales revenue these include, saturation and economic conditions (McGoldrick, 1995; Alexander, 1995; Etgar and Rachman- Moore, 2008; Evans et al., 2008; Alexander, 1990; Treadgold and Davies, 1988; Treadgold, 1989; McGoldrick, 2002; Kacker, 1985). The presence of push factors in today’s market is well conveyed by Wigley and Moore (2007), who suggest that extending sales internationally is a strategy necessary for growth; Bearne (2013) echoes this. The UK Trade and Investment state that international expansion provides opportunities for retailers to secure “a level of growth not otherwise possible” (UK Trade and Investment, 2013).
McGoldrick (1995) debates that the on-going influence of push factors upon a retailer’s strategy, stating that they are only present in the initial development of an overseas presence. Furthermore, Verdict (2011) and Euromonitor International (2010) claim that international expansion is being advanced by this sector to overthrow difficult trading conditions in the UK.
In contrast, pull factors are evident in the market that offer alluring conditions for a retailer to trade in; these factors include a fast growing economy and a competitor’s presence (Alexander, 1995; Etgar and Rachman-Moore, 2008; Evans et al., 2008; Alexander, 1990; Treadgold and Davies, 1988; Treadgold, 1989; McGoldrick, 2002).
Pull factors are likely to present the potential for swifter sales growth (Alexander, 1995). However, Evans et al., (2008) has argued that acting upon push factors will too present this result, making it difficult therefore to distinguish this as a pull factor as it underlines both.
McGoldrick (1995) provides a favorable model (figure 6.5), depicting internal and external pressures towards international expansion. It is noted that these factors do not exist in isolation and will become interlinked (Alexander and Doherty, 2009; Alexander, 1995).
The above-explained Internationalisation strategy consolidates a brand’s position within existing markets and concentrating on depth in these markets, in order to maximize territorial foothold and brand presence. In line with the brand’s overall growth strategy, Next’s international presence should be strengthened with an increase in the number of non-UK stores especially in Eastern Europe and South East Asia specifically Russia and China.
Continue reading on the next page for ‘Discussions and Conclusions’