Table of Contents
1. Executive summary 3
2. Introduction 4
3. Key facts and strategy 5
3.1 Key facts 5
3.2 Strategy 5
4. Current Market & Biggest competitors 7
4.1 Current Market 7
4.2 Biggest Competitors 7
5. Potential Risk & Challenges and how to mitigate with them 9
5.1 Risks 9
5.2 Challenges 10
6. Conclusion & Recommendation 11
7. Tables 12
7.1 Table 1 12
8. References 13
1. Executive summary
This is a report about NEXT PLC. NEXT is a British company which sells clothes, footwear and home products. With NEXT Directory as an online “store”, NEXT is one of the biggest retailers in the UK. With over 500 stores in the UK and 150 in the rest of the world NEXT is a good competitor for Marks and Spencer, The Arcadia Group and other big retailers in the UK.
This report will provide the information that NEXT is profitable company with a growing profit after taxes.
NEXT is a British company which sells clothes, footwear and home products. It was founded by Joseph Hepworth in 1864. NEXT clothes is styled by its original “in-house” design team to provide a nice style, a good quality for a reasonable price. With NEXT Retail and NEXT Directory NEXT is one of the biggest retailer in clothing and fashion in the UK. With NEXT Directory as an online platform NEXT gains a lot of customers in over 70 countries outside the UK.
Nowadays NEXT Retail has 5 stores in Africa, 95 in Asia, 624 in Europe and 5 in New Zealand. In 2016 NEXT realized sales of £4.1 billion and a profit of £821 million. But over the last 4 years the profitability in January for NEXT decreased. NEXT is on their way back but the company has a lot of things to do.
This report will provide a lot of the key facts and strategies of NEXT. The current market and the biggest competitors of NEXT are named as well. Further in the report it shows the potential risks and challenges of NEXT in the next 5 to 10 years. The report shows how they will mitigate with the risks and how to overcome their biggest challenges. By explaining all of this the report will give a good overview of the current situation at NEXT. And how NEXT future will look like.
3. Key facts and strategy
3.1 Key facts
These are some facts from the January 2016 annual Report.
• NEXT realized total sales of £4.1 billion. This means that the total sales increased with 3%.
• The sales for NEXT Directory, their online and catalogue business increased by 8%.
• For the profit that same year they realized a profit of £821 million. Which also means an increase of 5%.
• The earnings per share increased by 5,4% to £442.5.
• Also the dividends per share increased by 5,3% to £158.
• Because of the profitable year in 2015 the company invested £151 million.
This will show that NEXT is a really healthy company with a good starting point for the year 2017. With such a high total sales the report will show later on that NEXT can compete with their competitors. (NEXT PLC, 2016)
“Exciting, beautifully designed, excellent quality clothing and homeware.”
NEXT always strives to improve their products. NEXT is aiming to “meet” their customers by providing: “Exciting, beautifully designed, excellent quality clothing and homeware”. With a lot of standard rules NEXT is using NEXT wants to provide the customer a good product. Products should be well made, functional, safe and free from harmful substances. So without a great product they cannot achieve their goals. During the year they were focussing on their designs and how they can sell their products in two different ways, called long and short game. By using the “long game” NEXT is focussing on the development and direct sourcing of better fabrics, cotton and embellishment. With the “short game” NEXT wants to improve their decision making process. So that means that NEXT encourage their teams to make more important decisions outside the meetings. (NEXT PLC, 2016)
One of NEXT strategies is to increase the number of NEXT Directory customers and how much they spend, in the UK and internationally. NEXT Directory is one of NEXT ways to sell their products to the customer. They also changed the credit terms for NEXT Directory customers which increased Directory debtors by £215. (NEXT PLC, 2016)
To focus on their customer service is also an important point in their strategies. NEXT wants to increase the satisfaction level in both Retail stores and Directory. Focussing on customer service can lead to more sold products and a better brand image. (NEXT PLC, 2016)
“Maintaining the Group's financial strength through an efficient balance sheet and secure financing structure.”
This means that the company want to keep their strong balance sheet. Stay on the same track as the past year and try to improve yourself all the time. (NEXT PLC, 2016)
New stores must succeed to the financial criteria before the investment is made. This means that the concept for the new store has to be good (profitable, not too much expenses) to start. NEXT wants to measure it by calculating the return on capital. (NEXT PLC, 2016)
4. Current Market & Biggest competitors
4.1 Current Market
With a Brexit upcoming the whole fashion world expected a big impact in their world. But after all it wasn't that bad for the important market in the UK. Surprisingly by the weakness of the pound in international market turned the UK in to a golden paradise for bargain hunters to pay in a lot of types of money. One good example of this surprise was that the share price of Burberry increased by 24% after the Brexit. (Knott, 2017) (Hope, 2016)
“Its latest research, based on analysis of 7,000 shoppers, found that three out of four luxury purchases, even if they still take place in shops, are influenced by what consumers see, do and hear online.”
Over the last year the current market had a boost because of social media. According to the BBC online sales increased in 2014 with 6%. The BBC says also that its latest research shows that three out of four luxury purchases are influenced by what the customers see, do and hear online. Nowadays in 2017 companies are looking for more ways to promote their products by social media. NEXT in that case is using Instagram, Twitter, Facebook and Pinterest. With over 240.000 followers on Twitter, 443.000 on Instagram and 45.000 on Pinterest they are really well updated in the new social media market in the fashion world. (Hope, 2016)
4.2 Biggest Competitors
96% of all the sales NEXT makes is in the UK that's why this report will only look at the biggest competitors inside the UK. NEXT biggest competitors are Marks and Spencer and The Arcadia Group. Those two companies are for years the leading in the retail market. These three companies separate themselves from the market by their history and knowledge through the years. With over more than 3000 stores together they are on top of the market for years. Let's take a look who the competitors of NEXT are and how these companies are different from each other. (Top 10 UK Retailers: Clothing and Footwear sector (n.d.)) (NEXT PLC, 2016)
The Arcadia Group is a British multinational retail company which owes brands like Topshop and Topman but also a lot of other brands like Evans, Outfit and Burton Menswear. With over 2500 outlets The Arcadia Group is one of the biggest competitors of NEXT. As you can see in Table 1 The Arcadia group generates a revenue of over 2 billion pounds which is half of NEXT's. The Arcadia Group separates their company from the rest by focusing on the company's culture and to be a diverse group of brands. (About us, (n.d.))
Marks and Spencer was founded in 1884 and it is still one of the biggest retailers in the UK, which means that they are one of the biggest competitors of NEXT. Marks and Spencer also known as M&S is also a British multinational retailer. The specialties of M&S are clothes of course but also home products and luxury food products. With 852 stores throughout the UK M&S has more than NEXT but Table 1 shows that the revenue of both companies is almost the same with 4 billion pounds in the year 2014-2015. (M&S, 2015)
5. Potential Risk & Challenges and how to mitigate with them:
The annual report of NEXT for the year 2016 provides a Strategic Report which includes Risks & Uncertainties. By reading that conclusions can be made that NEXT tries to manage their risks “appropriately”. By having reviews after the end of the financial year of 2016 NEXT figured out that there were no failings in these reviews. Weaknesses were discovered and recorded in risk registers. And after that plans were made to address these. (NEXT, 2015)
Starting with the risks of NEXT it begins with the Management team. The success of this team is really important for the success of NEXT. With the ability to motivate their management every day NEXT really wants to keep their successful staff. But the retail sector is very competitive and NEXT's employees may be a target for other competitors. NEXT is trying to avoid this by providing career development opportunities for their most important personnel. Promotion and bonuses are a way to stimulate that. (NEXT, 2015)
What the report already said was that NEXT “always strives to improve their products”. By giving the customers what they want for the right price NEXT is trying to “meet” them. But with a failure in the short term they cannot manage this area properly. NEXT has to deal with surplus stocks that cannot be sold at the full price and has to be recorded as a loss. In a longer term speaking the reputation of the brand can go down. To avoid this NEXT's directors and senior management are trying to review the design, selection and performance of their product ranges. (NEXT, 2015)
Another risk can be a cyber risk. The IT systems of NEXT has to record a lot of data about for example the inventory. To avoid these kind of risks NEXT is constantly trying to get the newest updates for these systems. The most critical systems are reviewed and tested a lot of times to ensure every back up system works and if it's well updated. (NEXT, 2015)
The main financial risks are the availability of funds to meet business needs, to get ahead on payments, fluctuations in interest rates and exchange rates and compliance with the regulation. NEXT operates a centralised treasury function which is responsible for managing its liquidity, interest and other currency risks. NEXT treasury function operates under a “Board-approved” way. This includes “approved counter- party” and other limits which are designed to mitigate NEXT's chances to financial risk. (NEXT, 2015)
“Continue to work with our supply base to help them understand and develop improved traceability and visibility of the entire supply chain across our principal raw materials.”
One of the challenges NEXT made their self is quoted here above. It shows that it is challenging to work all the time in the same routine. People change but also customers change. To overcome this challenge NEXT needs to keep their own policy and discuss about the benefits instead of the weaknesses. (NEXT, 2015)
To stay one of the biggest retailers in the UK. By accepting this challenge NEXT needs to invest more the upcoming years in social media and their specific target group. They have to expand their NEXT Directory and open more NEXT Retail stores in other ‘potential' countries. (NEXT, 2015)
6. Conclusion & Recommendation
We can conclude that NEXT is nowadays one of the biggest retailers in the UK. With competitors as The Arcadia Group and M&S NEXT shows that they can compete with them. In the upcoming 5 to 10 years NEXT will stay one of the biggest retailers in the UK and maybe they will be the biggest. By investing a lot of money in marketing, stores and their staff NEXT will generate more revenue than ever.
7.1 Table 1
About us (n.d.). Retrieved February 26,2017, from: https://arcadiagroup.co.uk/about-arcadia
Hope, K. (2016). How social media is transforming the fashion industry. Retrieved February 25, 2017, from: http://www.bbc.com/news/business-35483480
Knott, B. (2017) Brexit's Impact on The Fashion Industry Is Not Necessarily a Bad Thing. Retrieved February 26, 2017, from: http://www.thefashionlaw.com/home/brexits-impact-on-the-fashion-industry-is-not-necessarily-a-bad-thing
M&S. (2015). Annual Report & Financial Statements 2015. Retrieved February 25, 2017, from: http://annualreport2015.marksandspencer.com
NEXT. (2015). January 2015 Annual Report and Accounts. Retrieved February 26, 2017, from:http://www.nextplc.co.uk/~/media/Files/N/Next-PLC-V2/documents/reports-and-presentations/2014/next-annual-report-2015-final-web.pdf
NEXT PLC. (2016). January 2016 NEXT Annual Report and Accounts. Retrieved February 26, 2017, from: http://www.nextplc.co.uk/~/media/Files/N/Next-PLC-V2/documents/reports-and-presentations/2016/Website%20PDF%20FINAL.pdf
Top 10 UK Retailers: Clothing and Footwear sector (n.d.). Retrieved February 25, 2017, from: http://www.retaileconomics.co.uk/top10-retailers-clothing-and-footwear
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