Pest Analysis of Airline Industry
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NEXT is a British retailer marketing clothing, footwear, accessories and home products with its headquarters in Enderby, Leicestershire, England (wikipedia.org, 2011). The NEXT brand itself was created in 1982 and has become a full-line lifestyle brand in its sector (NEXT,2011). The competitive strategy of NEXT which is powerful and reasonable made the company being considered as an aspirational in clothing retail industry. This report will be divided into four major sections which aims to find out the competitive and strategic position of NEXT in global clothing retail industry.
The first section will analyze how does the organization compete strategically. Firstly, competitivr strategy analysis of NEXT will be created. After that is the competitive advantage analysis. In section two, key external drivers of change affecting NEXT will be identified. An analysis of wider environment will be provided first which is followed by an industry analysis. The third section will consider NEXT’s key value adding activities. At first, the basic and unique resources as well as competence of NEXT will be identified. And then, a value chain analysis for NEXT will be created. In the final section, a conclusion will be drawn from the whole analysis to discuss the sustainability of NEXT’s strategic position.
1.0 The competitive strategy analysis for NEXT
1.1 Srategic Position Analysis
It is of great importance to identify the company’s strategic position in order to understand the strategy that NEXT employs. Bowman’s ‘Strategy Clock’ (Bowman et al, 1996) is a very useful framework to analyse the competitive strategy position of NEXT to consider the factors of perceived added value and the price of products. Figure 1: Strategy Clock The aim of NEXT is to meet or exceed customers’ expectations and it ensures the quality of products, products are safe and fit for their intended purpose, products fully comply with all legislation and its own standards where these go beyond legislative requirements (nextplc.co.uk, 2011). This suggests that NEXT focuses on manufacturing high quality products in terms of providing more perceived added value to customers. In addition, the company is also committed to operating a successful and responsible business which aims to provide a high level of service to all customers to welcome them to NEXT, wherever they shop in the high street, shopping centre or website, etc. (nextplc.co.uk, 2011).
Obviously, the firm pays attention to a high level of service and lets customers make sense of the added value. Since 2001, NEXT has created the next day delivery service on most home shopping orders. Currently there are more than 2 million customers in the UK and over 70% of NEXT’s home shopping business is now transacted online (nextplc.co.uk, 2011). Additionally, in October 2007, Meadow Hall in Sheffield became one of the first concept stores NEXT had fitted out in the new style that is now commonplace throughout its UK outlets (careers.next.co.uk).
These events highlight the firm’s consideration of its customers and ability to diversify the service to satisfy customers’ needs. Depending on the analysis above, Next could provide a relatively high degree of perceived added value for customers. The firm also differentiates both its products and services to meet the needs of its customers. Considering NEXT’s product orientation, the organization sells moderately priced clothing and target customers are stylish women and men from 20 to 40. It also updates low price fashion products frequently. It shows that the price of NEXT products is acceptable for the public. In addition, the management statement of NEXT in 2 November 2011 presents there will no further increase in selling prices in the first half of 2011 and this trend will sustained to the second half of 2012. Totally, the analysis above illustrates NEXT’s strategic position is ‘Differentiation’, number 4 in Bowman’s ‘Strategy Clock’. 1.2 Competitive Advantage Analysis
A strategic group is a concept used in strategic management that groups companies within an industry that have similar business models or similar combinations of strategies (Wikipedia. Org, 2012)
1.2.1 Strategic Groups
Distribution channels used and product quality are selected as competitive characteristics. Distribution channels used
Next distributes through three main channels: NEXT Retail, Next Directory and NEXT International (corporateregister.com). Its other businesses include NEXT Sourcing, Lipsy and Ventura, which provides outsourced customer services facilities (medlibrary.org, no date). Apparently, NEXT has a diverse distribution channel. Product quality
NEXT’s brand values means its products should be well made, functional, safe and free from harmful chemicals (nextplc.co.uk, 2011). What is worth of mentioning NEXT was confirmed as Official Clothing and Homeware Supplier to the London 2012 Olympic and Paralympic Games (nextplc.co.uk, no date). These illustrate that Next products’ quality is high. Marks & Spencer, Gap and ZARA may be NEXT’s direct competitors as they all provide their own-brand and affordable price clothing in diverse distribution. Therefore, they locate in the same strategic group. Companies which are outside the group are the indirect competitors of Next, such as LV and Versace.
1.2.2 ‘Generic’ Analysis
Porter’s (1985) ‘Generic’ analysis is very useful to identify the firm’s competitive position by considering the firm’s competitive advantage and competitive scope, seen in the following table. | Competitive Advantage|
Differentiation| Low Cost
Competitive Scope| Broad Target| Next
Figure 3: ‘Generic’ Analysis Until now, NEXT trades from more than 500 stores in the UK and Eire and over 180 stores in more than 30 countries worldwide (nextplc.co.uk, 2011). As Henry (2008) illustrates NEXT aims to adopt a broad-based approach which seeks to cover most markets within the industry, that is, engage in a broad target. As the strategic position of NEXT has been identified as ‘Differentiation’, thus in order to compete strategically with its direct competitors, NEXT utilizes competitive advantage of ‘differentiation’ strategy to gain more market share with the broad target. 2.0 External influences and drivers affecting NEXT
2.1 PESTLE Analysis
PESTLE is a framework to analyse key external factors which affect the clothing retail industry. It is useful for NEXT to identify its strategic position and potential. Political| Economic| Socio-cultural|
The government is reliable and stable The INTRASTAT exemption threshold A common customs tariff is applied across all EU countries on goods imported from outside the EU. (business.gov.uk, no date)| The price rise of raw material such as cotton will increase the product cost High pound sterling exchange rate against the Euro The economic crisis cause the recession in the UK which leads to customers’ confidence reduction. Rising VAT rate| Average working hours per week decreased over the last 20 years More and more people prefer shopping online rather than shopping in stores The Fair Trade movement has affected the fashion business| Technological| Legal| Environmental|
Fast growing internet business Existing materials can be produced cheaper and quicker New technology allows new products to be developed, such as Lycra®, Supplex® or other synthetic material.| EU trade agreements Agreement on Textiles and Clothing (ATC) The trend of a stricter environmental protection legislation| Demanded of “chemical-free” and low environmental impact products Green environmental issues| Figure 4: PESTLE Analysis The key external factors affecting the firm seem to be Political, Economic, Socio-cultural and technological. Legal and environmental will also affect the firm’s corporate image and reputation. Political
The stable political situation may create a favourable economic environment for NEXT. In the interim management statement of NEXT on 2 November 2011, NEXT Brand sales (VAT exclusive) in the third quarter were up 3.3%. In 2011, NEXT could get an INTRASTAT exemption if reaching the threshold of £600,000 for Arrivals and £250,000 for Dispatches (business.gov.uk, no date). NEXT have to pay the common customs tariff if importing goods from countries outside the EU. Economical
As Simon Wolfson (2011) illustrates, the tightening capacity in the Far East alongside soaring commodity prices, most importantly cotton has caused a significant input price pressure. The pound sterling exchange rate against the Euro is high, it is favourable for NEXT importing goods from some EU countries; however, exporting products to these countries will become difficult. The economic crisis in 2008 had caused the recession in the UK, and this led to the reduction of customers’ purchasing ability. Thus, the sales of NEXT’s products will be affected. The VAT rate rose from 15% to 20%, which means there had a negative impact on customers’ purchasing power. Therefore, the increasing VAT rate will reduce NEXT’s profits and increase the operation fees. Socio-cultural
The reduction of working hours makes people spend more time in shops, while they will also have more spare time to compare the details of products between different brands. It is a good opportunity for NEXT to increase sales. NEXT creates NEXT Directory which is a home shopping and Website with over 2 million active customers as a main outlet in order to meet the needs of online shopping. Technological
The fast growing internet business promotes the technological transferring of NEXT. As a result, NEXT’s producing process could save much costs and time. The use of new technology in NEXT’s products will also provide more added values for customers. However, NEXT must pay a big amount of prophase fees in terms of managing its on-line sales and training its employees. This will reduce the organization’s cash flow.
2.2 Industry Analysis
As Johnson et al. (2007) notes, Porter’s (1980) five forces framework is an appropriate analytical tool for evaluating the competitive environment.
Figure 5: Porter’s five forces Rivalry
among existing competitors
Henry (2008) notes such rivalry is often price-based and very aggressive. For example, NEXT’s market share and margins are often affected by Marks & Spencer’s (2009). Therefore, NEXT opened a standalone store for Lime, its new low-price clothing line at the end of 2006 in order to meet customer’s need of low price with high quality products (Telegraph News, 2006). In addition, in terms of avoiding the high export exit tariffs, NEXT concentrates more on its known marketplace and has developped as the third clothing retailer in the UK. Threat of new entrants
According to Birtwistle et al. (2003), a quick reponse is the main characteristic of fashion retailers. As Henry (2008) explains, the threat mainly comes from the reaction of existing competitors and the existence of barriers to entry. For NEXT, the threat comes more from new competitors entering the market, especially the big labels, chain companies and department stores outside the UK, such as Calvin Klein and Donna Karan. While, as a 150 year old firm, NEXT has recovery investment on information systems and equipment, and this makes its operation costs much less than the rivalers who are freshmen. Threat of substitute products or services
Henry (2008) notes this is the competition from products and services which could satisfy similar needs, but not from from new entrants. However, it is not an essential issue for clothing retail industry. The impact of a substitute is limited as NEXT is the provider of varieties of clothing items. Bargaining power of buyers
According to Henry (2008), buyers can affect an industry through forcing downprices, playing competitors off against each other, and bargaining for more services or higher-quality. Suppliers may have to reduce price to avoid losing sales if huge numbers of consumers go shopping in the same store and seek price cuts. Bargaining power of suppliers
Henry (2008) points out suppliers can raise prices or reduce the quality of purchased goods and services to exert bargaining power over participants in an industry. The influence is limited for NEXT because there are many firms in the clothing retail industries and they form the industrial clusters. In addition, the rising price in main raw material such as cotton makes retailers must accept a hihher sale price. Therefore mutual dependence is rated low.
3.0 Value Adding Activities of NEXT
3.1 Resource Audit
| Same as competitors’ or easy to imitate| Better than competitors’ and difficult to imitate*| Resources| Basic resources| Unique resources|
Competence| Threshold competences| Core compentences|
* Provides the basis to outperform competitors or demonstrably provide better value for money Figure 6: Resource/Competence framework 3.1.1 Unique resources of NEXT
The first NEXT shop opened on 12 February 1982. Currently, it has more than 550 stores all over the UK and the Republic of Ireland, and 50 franchise branches in Europe, Asia and the Middle East. It is a constituent of the FTSE 100 Index and lists on the London Stock Exchange. (wikipedia.org, no date) Intangible
NEXT gains good brand image as its high quality products. NEXT also provides oustanding services for customers, e.g in 1999, NEXT introduced the first online home shopping in the UK. Organizational capability
NEXT Plc (2011) has a excellent human resources with 55,122 employees until 2010. The management team such as the Chairman-Jhon Barton and Chief Executive-Simon Wolfson has strong adaptability to lead the firm to make more profit. 3.1.2 Core compentences
Brand value is the core compentence of NEXT, especially its high quality products and excellent customer services. For example, NEXT was confirmed as Official Clothing and Homeware Supplier to the London 2012 Olympic and Paralympic Games (NEXT, 2011). The core management team reasonably balance the basic and unique aspects and effectively exert the tangible and intangible resources to make NEXT develop as one of the most famous brand in clothing retail industry in the UK. In addition, Sourcing Division and Ventura Division are powerful to support NEXT operations. The two divisions brought £54.3 million profit to NEXT in 2008 (NEXT, 2008). 3.2 Value Chain Analysis
As Porter (1985) explains, value chain describes the activities within an organization that go to make up a product or service. Value chain activities include primary activities and support activities. It is very important to identify the linkages between these activities as the linkages could lead to competitive advantage.
Figure 7: Porter’s Value Chain 3.2.1 Primary activities
Primary activities are directly connected to sale, maintenance, physical creation and product support or service (mindtools.com, no date). They consist of inbound logistics, operations, outbound logistics, marketing & sales and service. Inbound logistics:
As Henry (2008) illustrates, these are value chain activities which contain receiving, storing and distributing inputs to the products. He further explains that NEXT should prepare the work of material handling, warehousing, inventory control, vehicle scheduling and returns to suppliers. Therefore, NEXT could not add much value through these activities since they are very basic and needs some costs. Operations:
These activities are of great importance for NEXT to create value to its products. NEXT could add its core competence such as advanced producing technology, distinctive design concept, and consummate manufacturing technology to the products. The high quality products make NEXT gain more proportion of market share. Thus, these activities are the key part for NEXT to add value among the value chain. Outbound logistics:
These activities mainly deliver product or service to customers. Henry (2008) notes outbound logistics includes collection, warehousing, distribution systems, order processing and material handling. In the case of NEXT, these activities could not add value on the firm’s products. They are also very basic and need some costs, just like inbound logistics. Marketing & Sales:
As Henry (2008) illustrates, it contains pricing, advertising, promotion, channel selection and retail management. The advertising and promotion policy could induce consumer’s desire to buy NEXT’s products. The enthusiasm of customers makes NEXT control the initiative of pricing. According to three main outlets: NEXT Retail, NEXT Directory and NEXT International, the firm could add moderate value to its products. Service:
As Henry (2008) highlights, these activities could enhance or maintain the value of products, such as repair services, installation, and customer support. NEXT provides services such as next day delivery and online home shopping to customers and lets its customers make sense of the perceived added value of the products.
3.2.2 Support Activities
They include four support activities: procurement, technology development, human resource management, and firm infrastructure. Support activities aim to make sure the primary activities could be effectively and efficiently carried out.
This is what the organization does to purchase resource inputs in order to support its primary activities. NEXT exerts this activity to support inbound logistics activities in some specific aspects, such as material handling, vehicle scheduling and returns to suppliers. Technology development:
This activity protects a company’s knowledge base and it is also relate to how technology affects product, process and resource developments. For NEXT, it links with operations (e.g. machining, assembly and facility operations). It could also support such service activities as repair, parts supply and product adjustment. Human resource management (HRM):
Henry (2008) suggests these activities include recruitment, training, development, and remuneration of employees. HRM is very important for NEXT, because it support individual primary and support activities. What is more, HRM activities may also support the entire value chain, when NEXT engages in company-wide pay negotiations. (Henry, 2008) Firm infrastructure:
Firm infrastructure is the support system of NEXT, and it is usually used to support the whole value chain.
4.0 Sustainability of NEXT’s Strategic Position
This report has used six analysis models to analyse the competitive and strategic position of NEXT in global clothing retail industry. Considering gaining more market share proportion and the further development of NEXT, the company should identify an appropriate strategic position. NEXT has to recognise the direct competition from such as M&S, ZARA and GAP. Additionally, indirect competition from such as LV and Versace should also be considered. Then, it is very important for NEXT to adapt to the influence from external environment. Specifically, political, economic, socio-cultural and technological factors are the key external aspects. On one hand, NEXT should consider more on how to overcome the negative impacts on these factors; on the other hand, it should also grab the opportunities. Due to the characteristics of clothing retail industry, NEXT has some relative strengths. However, it is still essential for NEXT consider the rivalry and threat of the industry. Therefore, in order to exist in the competition, NEXT must utilize its unique resources to boost its own core competence, such as the high quality products and excellent customer services. For this purpose, NEXT should provide customers with more value added products dhuring the value activities.
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(Accessed: 20 January 2012)
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