A case study of the retail chain NEXT Essay

Introduction In 1864 Hepworth & Son, a Gentleman’s Tailors store was established in Leeds. Hepworth then went on to buy the chain of Kendalls rainwear shops in order to develop a group of Womenswear shops which was called NEXT. Since 1982, NEXT has expanded in a variety of different ways, whether it has been by expanding on existing products or clothing ranges or by expanding into different areas, for example home interior ranges. On February the 12th, 1982,the first NEXT women’s wear store was opened. It introduced an exclusive and co-ordinated collection of stylised clothing as well as shoes and women’s accessories. By the end of July, NEXT had expanded greatly, forming seventy new shops. The collection ranges for men, children and home followed the opening of the women’s collection. In August 1984, NEXT launched their clothing range for men, and by December there had developed 52 shops. The same year, the first â€Å"mini† department store was opened in Edinburgh. This incorporated a cafà ¯Ã‚ ¿Ã‚ ½ as well as Womenswear, menswear, and shoes. When NEXT launched their interior range of soft furnishings for the home in August 1985, the first department store, which had, Womenswear, menswear and interiors, was opened in Regent Street, in London. Between 1987 and 1988, NEXT launched both their Children’s wear collection as well as their directory, so that their customers were able to buy their products in the comfort in their home, with time to spare and look at the products carefully. In 1993, NEXT then announced the brand strategy of â€Å"One Brand Two Ways of Shopping†, which brought together the common ranges across both retail and home shopping formats. To further develop this strategy, in 1999 there was a launch of shopping on the Internet from the NEXT Directory at www.next.co.uk. NEXT is now trading from over 330 stores in the UK, in 16 countries worldwide, such as: Bahrain Cyprus, Czech Republic, Indonesia, Japan, Kuwait and Qatar, and has 49 stores overseas. It recently opened several larger stores in the UK in areas such as Bluewater Park and Liverpool. Methodology I have chosen to base my report on NEXT. I will be considering different aspects of the business, for example: objectives, organisation, culture, structure and communication channels within the business. I will then be examining how these factors are affecting the success of the business. As I am currently employed at NEXT, I can use this to my advantage in order to find out the information I will require in order to carry out my project. Being an employee at NEXT, I am involved in team talks which are carried out each morning, in order to discuss ideas and for the manager to notify all the staff the objectives and targets for the day, which are mainly involved with the amount of sales required in order to reach profit targets. Staff are also notified how much profit each division of the business (home, women’s wear, men’s wear and children’s wear) is making each day. This enables all the employees to discover how well the business is doing. I will also be using the Internet to visit the NEXT website in order to collect general information about the business, as well what they offer to customers. I will also be using certain websites ion order to further my knowledge in the areas I will be discussing within my report. In order to collect more specific and detailed information, I will be having a meeting with the store manager so that I can find out about how the business is doing financially, and how the managers ensure that objectives are met within the business. Business Ownership In 1986 Parent company, J Hepworth & Son changed its name to NEXT plc. NEXT is a public limited company (plc). A public limited company is an organisation, which has limited liability, which means that the responsibility for the debts of the company is limited to the amount of capital invested in the company. A public limited company sells shares to the general public on the stock exchange. Both private and public limited companies operate within the private sector. To set up a public limited company, application must be made to the Registrar of Companies in Cardiff. This application is accompanied by: – a statutory declaration. – a Memorandum of Association. – the Articles of Association. In addition to this, after receipt of a Certificate of Incorporation, a public company has to offer a prospectus to the public as well as share certificates to those who purchase shares. There are two types of shares, ordinary and preference Authorised share capital is the maximum number of each type of share that can be issued, as laid down in the memorandum of association. Issued share capital is the actual number of shares of each type that have been purchased and share premium is the difference between the nominal price of the share and its market price. The ownership of the public limited company rests with the shareholders. Control of the company is in the hands of the directors. Sight must never be lost of the fact that in many companies, major shareholders may choose directors and in turn directors may be shareholders. Both of these situations could prove to be detrimental to the interests of the remaining shareholders/directors. There are many advantages to be had from forming a public company compared with the formation of a sole trader or partnership. A few of these advantages are: * Limited liability. * Larger capital base, through the purchase of shares. * Separate legal identity ensures continuity of the business independent of the personal circumstances of the individual shareholder. Annual accounts and reports of a public limited company are subject to external review, therefore verifying the truth and accuracy of the financial control of the company. Disadvantages associated with this type of ownership are: * there are many legal formalities that must be complied with before the company can be set up. * activities are closely controlled by company law and the running of the company is subject to legal constraints. * accounts are public and this means a lack of privacy. * the company has to pay for an auditor to independently check the accounts. * the company is accountable to its shareholders and its creditors. * divorce of ownership from control can lead to a conflict of interest, as the aims of the shareholders, directors and management may not be the same, eg directors may want to grow the business over the long term, shareholders may be expecting a quick, high return on their money. * the performance of the company may not be reflected correctly in its share price. If the industry as a whole comes under pressure, then the firm, through no fault of its own, may suffer. * if the company is too large, it may lose its efficiency and become tied down in red tape â€Å"diseconomies of scale†. * they are subject to takeover bids. There is no way of stopping other companies buying big blocks of shares. * in practice, the small shareholder can do very little to influence the way the company is run. Culture and Objectives One of NEXT’s most important objectives is to profitably expand their selling space, as they believe that new space would continue growth of sales and profits in the years ahead, as it would enable them to offer customers a greater choice of product in a more comfortable shopping environment. They are continuing to develop and expand their product ranges, as they believe an understanding of their customers, combined with their design skills, can genuinely add value. The business is innovative as they are able to come up with new ideas to match changes in the business environment as well as changes within the markets, yet they still keep a high quality image of brand. The style, quality and value of their ranges remain their highest priority. They believe that it is important for the product to make the brand successful. They continue to pass benefits of better buying, by offering the same quality product at lower prices or better product at the same price. This effort will ensure that the business continues to go forward. Within the store team, team talks are held every morning so that the employees have time to talk to the managers within a group about ideas and suggestions that could be made within the business. This way the employees feel as if they have a greater involvement with what goes on. This relates to task culture. The managers have to encourage teams and listen to them rather than just telling than what to do. They think that everyone should be involved, so ideas can be shared and everyone feels involved. This way people feel committed to the changes that may be made to the culture of an organisation rather than seeking to resist it. Objectives and targets are set each morning for the day to ensure that aims are met and that they meet their profit targets for the day. The drive to profitability helps shape the attitudes, values and beliefs in the organisation. In this business organisation their role culture involves the objectives of maximising sales and making profit. All members of staff have a defined role to carry out which is determined by their job description. Role culture is normally split up into a number of functions that are organized in a hierarchical way, for example Next divide themselves into various functions like accounts, marketing and production. This type of culture works by logic and rationality. Role culture is mainly used in large organization. In this culture position in the main source of power and rules and procedures are the main source of influence. NEXT takes social, environmental and ethical matters seriously. They are committed to corporate social responsibility from Board level and throughout their teams and group. The Group has taken actions to contribute to ethical trade and, within commercial constraints, sustainable development. The Board has identified and assessed the key business risks, issues and opportunities that have come about due to social, environmental and ethical matters. An executive director has responsibility for these matters and considers all aspects of the Group’s behaviour. NEXT’s efforts to improve development will continue to focus on waste and climate change. They have taken steps to reduce waste and in particular have reduced use of energy and CO 2 release per square meter over last year. The Group will continue these ideas where commercially possible. NEXT’s social policy involves the diversity of its workforce, and safety and ethical requirements for suppliers. People are a key asset to the business, so treatment towards them is very important. They have developed policies for recruitment, training and development of personnel, which are contained in staff handbooks. The business is committed to achieving excellence in the areas of health, safety, welfare, fire prevention and protection of the working environment and has therefore taken up policies aimed at minimizing risks in the Group’s activities in order to make sure that they do not harm employees, customers or the general public, all of whose interests are regarded as critical to business success. NEXT believes that employees have equal opportunities, and will continue to make sure that they offer career opportunities without discrimination. The Group continues to improve the health, safety and well being of its employees. A major health and safety programme has been applied throughout the Group, with increased training in NEXT Distribution and improved communication between staff and management. Increased resources have been dedicated to the promotion of health and safety matters during the year and the Board has reviewed the resulting policy. The Group’s ethical policy is extended to its suppliers. NEXT Brand introduced a supplier Code of Practice in 1998 in respect of working conditions, including ‘minimum compliance standards’ for child labour, environmental protection, wages and other issues. A team of dedicated auditors, based in the UK and overseas, work to inform, monitor and improve supplier fulfillment to the Code of Practice. In 2002 the Group became a member of the Ethical Trading Initiative in addition to its commitment to its own Code of Practice. NEXT has a well-established corporate charity and sponsorship programme, donating time, funding and resources to a wide group of local and national charities. A committee made up of employee representatives have regular meetings to ensure that varied ranges of charitable causes are supported. FINANCIAL OBJECTIVE The financial objective of the NEXT is to maximize long-term growth in earnings per share. Over the last five years their earnings per share has increased by 86%. They aim to grow their earnings per share by continuing to progress the main operating profit of the NEXT Group. This will mainly be achieved through the development of product ranges, expansion of their selling space and the growth of their home shopping business. It will also be achieved by continuing to enhance growth in earnings per share through the buying back of shares for cancellation as and when it is in the interests of shareholders. DEVELOPING THE NEXT DIRECTORY NEXT have two main objectives in NEXT Directory. These are to increase the number of people using the Directory by increasing their customer base and also by increasing the size of offer available to order from home through increasing the number of pages. The Board sets objectives and annual targets for the Chief Executive to achieve. The Board is responsible for general policy on how these objectives are achieved and gives the achievement of that policy to the Chief Executive. The Chief Executive is required to report to the Board at each meeting all material matters affecting the Group and its performance. NEXT also aims to expand sizes of their stores. The drive for new space is decided by strict financial criteria. Every new store aims to pay back the net capital invested in less than 24 months and to achieve at least 15% store profit on sales before distribution and central costs. When appraising new stores the store must achieve its investment criteria on the basis of its expected first year sales. FUNCTIONAL AREAS Within Next, the functional areas have been categorised into three main sectors. These function areas in the business help Next meet their objectives in different ways. The management team give directions to the staff so they are able to meet objectives They have the management team, which are in charge of all the subdivisions of the functional areas, the operational area which involves marketing, administration, finance and accounts, human resources and marketing. These sections then branch off into smaller areas such as: Delivery and Replenishment- where all the products delivered to the store from the warehouse are unpacked, checked off, and then prepared to be taken down to the shop floor, or to be stored within the stock rooms. In order to prepare the items of clothing, they are tagged, for security reasons, and then placed on a hanger with the correct cube indicating the size of the item. Delivery actions have to be carried out quickly and efficiently so that the stock can reach the shop floor ready for replenishment. This needs to be carried out in the correct sizes so that the stock levels are controlled Health and safety-Both the health and safety of the staff and the customers have to be considered. All members of staff have to sign in when entering the store and sign out when leaving. Also, visitors have to follow the same process in case of a fire or any other emergency, which may lead to people having to evacuate the building. This will enable the identification of whom, if anyone has not been able to evacuate the building so they can be brought to safety. Other health and safety regulations have to be followed, for example, and pin tags have to be picked off the floor to prevent injuries from people stepping on them. Health and safety ensures that everyone’s safety within the store, including the customer as well as the staff is maintained at all times. Space management and Best sellers- The best selling stock are placed in the best selling spaces, which is usually directly in front of the entrance where it is easily seen by the customer to attract more customers and therefore maximise profits. The third sector they have is the commercial area, which involves, till service, fitting room service, security, front cover, shoes and general customer service. A high level of customer service is provided on the shop floor so that customers feel welcome and make repeat purchases as they feel in a comfortable and friendly shopping environment. Finance and accounts Within Next, the financial area of the business is extremely important as it analyses how well Next is meeting its objective of maximising profits. This area within the business has to keep an exact and very detailed record of the money paid in and out. Also various financial records have to be produced at regular periods, for example balance sheets and profit and loss accounts. This is so that the amount if profit and income the company is getting can be analysed clearly to determine its success or any adjustments that need to be made if the income is low, in order to maximise profits that next is receiving. Next have subdivided their finance and accounts area into two further function areas. One area is the management accounting function. This provides the managers with figures, which will help them to make decisions, perhaps about pricing decisions, within the business that could help them better their financial position. This functional area has the capability and the responsibility to shift the company in specific directions by making decisions in relation to the analysis of figures, and enables them to use these figures to make predictions for the future. Improvements that Next may decide to make are based upon the information extracted from breaking down of the figures to display the performance of the business. If the performance is not satisfactory then targets are set for the business to achieve to better its performance. Also limitations of spending may be set for specific areas of the business, by using certain control systems such as budgeting. The cashiers department, within the accounting functional area, involves the collection of any cash or other payments from each till within the store so that the cash transactions can be analysed and the sum can be checked. Other payments to the store through cheques or payments through bank accounts are also handled in this department, and then these will be recorded in cashbooks or within the stores’ computer system. The wages department is in charge of managing the payrolls by calculating and paying the wages. The information needed to calculate these figures are obtained from the timetables of hours worked by the employees on each department within the store, so that the amount of pay they receive is accurate. The second subdivision within the finance and accounts area is the financial accounting function, which keep records of any financial events that may have occurred in order to keep summaries of financial dealings. Any debtor or creditor details must be recorded as well as accounts of the amount of money being paid into or out of the business. To ensure the company does not give out incorrect wages, factors such as national insure will need to be calculated and deducted from ones wage. Other financial accounts have to be provided such as annual reports so that figures can be easily obtained ready for discussion between the directors. Marketing Within this area of the business, it is important that customer requirements are identified, anticipated, and satisfied beneficially in terms of profit. This again links to Next’s main objective of maximising profit. Although marketing and sales is combined in Next, they both have distinctions between them. The marketing area have to persuade the company to produce what the customer wants, whereas the sales area have to persuade the customer to want whatever the company may be producing. The marketing department have to look into what the customers wants and needs are, therefore research, especially primary research, has to be carried out to find out details about the market for example, who is in it, what this particular market wants, where, how, and at what price one way of finding out this information through primary research is to carry out questionnaires. Although Next do not produce their own products, their marketing area has a close link with the producers of Next’s products to ensure the requirements of the customers are closely related to the development of the product. Other tasks carried out by the marketing area are pricing, distribution, advertising, packaging and promotion. All these factors must be considered carefully to ensure the success of the product. Human resources Within Next the human resources management area, also known as the Personnel debarment, is involved with recruitment, market share, liability, organisational structure, type of ownership, motivating workers and industrial relations. Research and development: Within Next, the research and development area is linked to the commercial department, as its functions are commercial, which are achieving and furthering the aims of the business. This is achieved by improving existing products or creating completely new ones, operational processes are also improved to ensure the products are also improved successfully. Advice is given to the company in order to lead them in the right direction throughout the course of improving their products and processes. If this flow of new and improved products were not carried out then Next would be unlikely to remain successful, as they would still have their unsuccessful products, which would bring no income into the company, therefore the profit will start to fall. Administration The administration area within next work towards provided the employees with any documents needed, communicating messages as well as dealing with any enquiries. MANAGEMENT STYLES The structure of an organization depends a lot on its management style. The main management style used in Next is Democratic this is a system based on equality of all members of their community. This allows the main managers to develop. The staff within Next are given a framework with which they are given more responsibility and the opportunity to make decisions. However, employees are still encouraged to take part in decision-making. Therefore these individuals are held responsible for any decisions that they may chose to make. This recognizes employees are stakeholders in the organization. The democratic leader listens to all staff and is willing to take suggestions on board. Advantages for this type of style is that it helps motivate employees well because it makes them feel like they are being appreciated. Also the employees are well informed about the organizations aims and future plans. However it can lead to disadvantages as well as it is difficult to apply. Autocratic styles are sometimes also used in next under certain circumstances. This is when one person has absolute power. The managers make all the decisions without consulting the employees. Employees can get unmotivated by this, therefore causing a negative atmosphere in the workplace. However there are some situations where harsh leadership is vital. Advantages of this are that quick decisions can be made and there is no time wasted on discussion resulting in the business saving time and money. Next only use this method when quick decision-making is vital, usually by the manager, for example; if there is a close deadline to be met, but it rarely has a negative effect on the staff, as it is not used to intentionally exclude members of staff. Consultative management also takes place within next and this develops their democratic style with which workers are asked opinion. Before any decisions are made, the manager consults their team. Employees discuss the problem and views taken into consideration. The decision is the managers but based on the conclusions of the group. The advantages of this are that it helps to motivate staff as they are aware that they have a say in the business to some extent as with the democratic style, but their decisions are not necessarily what the company goes by. The disadvantages of this are that it is time consuming and effort will be needed by a manager to do this. The Management encourages employees to set goals in line within the organization aims. This is management by objective. The employees are reviewed regularly in performance appraisals. The advantages of this style are that it will increase efficiency of individuals and help to motivate them and train them so they are productive. However, the disadvantages of this is that it needs to be well organized and will not work in highly structured jobs. The Democratic style is the management style that Next adopts in general. This sort of management style involves empowerment. With this type of management style it allows the manager to feel comfortable with other people in the organization making some of the decisions. Democratic managers will often want feed back from their employees on decisions being made. Democratic leaders therefore have to take time to listen and perhaps act on the opinions of the group. This type of management is good as it makes the employees happy and productivity is high. This is very good because employee’s thoughts and suggestions are listened to by the business. This makes the employees seem as if they are respected and that their thoughts are valid. Management delegation The Chief Executive has delegated authority for the day-to-day management of the business to operational management drawn from executive directors and other senior management who have responsibility for the particular areas. The most important management meeting is the weekly NEXT Brand trading meeting, which considers the performance and development of the NEXT Brand through its different distribution channels. It considers all business aspects of risk management in respect of the NEXT Brand including sales, property, product, systems, warehousing and personnel. Key performance indicators are monitored daily and weekly. Risk management The Board is responsible for the Group’s risk management process. It has given responsibility for achievement of the risk management process to the Chief Executive and senior management best qualified in each area of the business. The Board sets guidance on the general level of risk, which is acceptable and has a considered approach to evaluating risk and reward. The Board confirms that it has again carried out a review of the effectiveness of the Group’s system of internal control covering financial, operational, fulfillment and other controls and risk management. This includes identifying, evaluating, prioritizing and revising risks, determining a control strategy for each significant risk and consideration of how each risk might impact on the achievement of the business objectives. Risk management and internal control is a continuous process for the Board and has been considered on a regular basis during the year. The Board promotes the development of a strong control culture within the business. During the year the Board addresses the business risks that have been identified as vital, including a review of these risks that takes into account any changes in circumstances over the period. The Board considers that the Group’s hierarchical structure of management and continuous monitoring of key performance indicators provides the early warning mechanisms necessary to identify any areas of concern. Communication channels Communication with employees Team briefing/ team talks- internal and formal This is carried out each morning with all members of staff working that morning shift and all the mangers within the store. This gives an opportunity for suggestions to be made and opinions to be shared by members of staff. It gives them motivation as they feel part of a team, as they are able to discuss their views on certain areas. The manager also sets targets for the day and informs the employees of the success or failures which have been encountered. Training (Face to Face)- internal and formal This method of internal communication will result in successful communication with customers through an external channel. The employees at next need to be informed on how certain tasks are carried out before they start working at the store. This is to ensure that they are able to see to any queries the customer may have. Training the staff will ease the workload of the managers, as they are able to help with the tasks involving customers on the shop floor and therefore help achieve the business objectives. Also, incentives may be given to staff if their hard work is identified, this may motivate the employee to work hard in order to be rewarded. Performance Appraisals-internal and formal This form of communication occurs between the floor manager and the individual members of staff working on that particular floor. This process involves the evaluating of the performance of the individual employee. The manager then provides feedback to the employee on areas where adjustments may need to be made involving performance. This process acts as development experiences, which should enable the employee to improve knowledge and understanding in preparation for future responsibilities. Expectations and requirements are expresses by the manager so the employee is able to set targets to better his/her performance. Notice Board – informal and internal This method of communication is used within Next to inform employees about different subjects, for example; events that are due to occur, or perhaps reminders are highlighted to be remembered whilst working, for example customer service. Letters stating the progress and objectives of the business are also placed on the board so it is clear to the employees what they are aiming to achieve. Roster – formal and internal The rosters within next are held on the shop floor and ensure that all members of staff have a clear indication as to what tasks they will be carrying out throughout their shift. They are given set tasks every hour for example: till service, fitting room running, etc, this motivates the staff as they will not get bored by having to do the same thing all day (job rotation). Communication with customers Customer service Within Next customer service is essential within every task carried out be the employees. The person on front cover has ensure the customer is greeted on entering the store, and if there are any customers already in the store must be approached and asked if they require any help. Employees of next are taught to put the customer first in all circumstances, as they are the ones who are supporting next financially. When serving customers on either the till or fitting rooms, they should be greeted and ask if they require any help, in a polite and friendly manner. If a customer requires an item alternatives could be offered as well in order to increase sales. Internet Selling – external communication The Next directory has a link with the next website where customer are able to view and purchase clothes, through online shopping, from next in the comfort of their own homes. The website used is www.next.co.uk Special Offers – external communication This communication method is used to attract customers to buy products at reduced prices, however, after having entered the store customers usually decide to purchase other products they like which may be full priced, increasing Next’s profit. Window Displays Existing items that are in the store are arranged in an eye-catching mode and then put on display in the window, so any passers by are able to view items in the shop without having to enter. This may attract new customers who have not visited the store before. Quality assurance + adding value Next do not have a great deal to do with the production process however to ensure the quality of the products are the highest standard possible, the best quality manufacturers are used. The items are continuously checked within the warehouse as well as when they are received by the individual stores. If there are any faults in the garment when being checked in the circulation, then these items are withdrawn and renovated. This process is defined as quality control, and is involves with the detection and removal of any products that fall below the set standard after they have been produced. Quality assurance involved attempting to prevent any faults from occurring in the first place. All the returns are monitored and if a trend occurs in the fault of a garment, then the manufactures are contacted in case there is a fault within the production process. The products are tested to ensure they are highly durable, and therefore of o high quality. Value is added to Next’s products by its quality assurance and control. The way in which the marketing area of Next carries out its research ensures that sufficient information is obtained about the expectations of consumers so that quality standards required from the consumers is created. This adds value to the product, as the consumers will be more willing to pay for the product as it is at a high quality. Next have to accept the fact that their designs will not enable them to ‘get it right’ every year, so they have to take some risks. Small companies are able to do this and can go on touch; however, larger companies cannot and so therefore need to have systems. Any mistakes that next happen to make with any designs of their products do not last too long, as they have a short product cycle because they work in seasons. Each new season brings new products. This enables next to bring in new clothing designs and improve on the designs, which were not a success; this will mean further marketing research. However, any products which proved to be a success can be carried over to the next season so that Next can keep their income rate high as they already know the product is successful. Impact of ICT The retail systems used by Next are their own as they are packages that they wrote based on their models. They invented them themselves, however, they’ve outsourced their mainframe computers and payroll packages. The use of ICT allows the different functional areas within next to pass their information through from one to another. This enables them to work together more efficiently as each area has the same information to work with. For example, this can be used for means of administrative work so that any paperwork that concerns costumers can be passed out to the required functional areas within the business Internal ICT Communications used by Next use ICT to communicate both internally externally. This includes communication between managers for example faxing is used to contact each other because they have a fax machine located within their office, therefore they are able to keep a record of what has been communicated, for example, records or letters. If management need to be contacted by the employees from anywhere within the store then pagers would probably be the alternative to contact them, as it is heard throughout the store so they will receive it straight away, whereas with faxing, it may not be received straight away as they may not be in their office. At the till point customers are able to purchase their items, as well as order items in. This can be done as the till enables one to check what items are available to order from the warehouse, or whether any local stores have them, if so then the item can be sent to the store. The till keeps an account of what items have been sold so best sellers can be identified and the worst selling products can be improved on. It allows more information to be exchanged or to be researched within the store Internet selling is one main use of ICT within Next; it allows customers to shop and purchase whilst at home so they are able to take time to view products. Also it may appeal to more people who are often too busy to come out shopping. It is an effective way for next to maximise their profits. It also has informative areas on the website which show annual reports of the business to indicate how successful a year it has been. This idea of online shopping may not be such a good idea in some ways as the customer is unable to try products before purchase so if it doesn’t fit it will have to be returned. Within the financial area of the business the current accounts are stored as files on the computer, to keep it organised well and to ensure it is easily accessible. Also, with the use of specialised software, the procedures involved with accounting are simplified a great deal. Success of meeting objectives: PROFIT AND LOSS ACCOUNT Turnover and profit figures are set out in the table below: Turnover Profit Excluding VAT Before Tax 2003 2002 2003 2002 à ¯Ã‚ ¿Ã‚ ½m à ¯Ã‚ ¿Ã‚ ½m à ¯Ã‚ ¿Ã‚ ½m à ¯Ã‚ ¿Ã‚ ½m NEXT Retail 1,579.7 1,359.7 213.9 188.2 NEXT Directory 471.7 362.2 65.1 49.2 The NEXT Brand 2,051.4 1,721.9 279.0 237.4 NEXT Franchise 22.7 19.1 4.4 3.7 Ventura 97.4 101.9 11.2 13.0 Other activities 31.1 28.8 15.1 2.5 ESOP charge (8.2) (8.0) Turnover & operating profit 2,202.6 1,871.7 301.5 258.6 +17% Interest (expense)/income (0.3) 7.2 Profit before tax 301.2 265.8 Taxation (90.7) (76.0) Profit after tax 210.5 189.8 +11% Earnings per share 68.7p 58.1p +18% The profit and loss account above clearly indicates that Next has successfully met its objective of maximising profits as it has increased a further 11% since 2002. Next have continued to make good progress within the year 2003. Earnings per share rose by 18% to 68.7p and were improved by the useful effect of the share buybacks in the last two years. Next want to own fewer, bigger stores in order to take advantage of the economies of scale. This is a strategy in which they have been working on for the past few years. They are not interested in growing the number of stores in all areas, they have generally chosen to expand into towns, which they would prefer their stores to be in, and now they have stores in these areas chosen. Each store has to fit their model in terms of footfall and the time in which it will pay back their investment. Next currently have a 4-5% market share in the UK, but they hope to increase this up to about 8% in the next five years. However it is important that they do not dilute their management by diversifying the business or expanding into Europe. The Corporate strategy of next: From the early 1990’s Next have resisted all attempts to increase the number of clothing brands that they operate because they were convinced that expansion would lead to the failure of the NEXT Brand. The success that they have achieved over many years as a result of product development, the progressive move to larger stores and the increase in the number of home shopping customers, shows that that it is right to continue with their strategies as it is obvious that they are being met successfully due to the success of the business. Although Next retail is what Next is most associated with, the Next Directory is also proving to be financially successful and has a turnover of almost à ¯Ã‚ ¿Ã‚ ½500m and is one of the few really profitable home-shopping companies in the UK. Next’s ability to generate cash enables them to continue to buy back their shares when it is in the interests of our shareholders. This is an important part of their aim to deliver long-term growth in earnings per share. The success of NEXT is due to the following factors: Their focus on providing their customers with the product they want. The strength and skills of a good, well motivated management team that is honest to recognize its mistakes and quick to put them right. The support of their suppliers with whom they work in partnership to achieve good quality and value for money products. Also, the enthusiasm and dedication of all their employees who take great pride in the success of their company. Next Retail Financial Performance YEAR 2003 2002 %Change SALES 1, 121.0 944.8 15.7 OPERATING PROFIT 130.4 113.6 12.9 PROFIT BEFORE TAX 123.2 115.8 6 PROFIT AFTER TAX 85. 7 81.1 5.4 EARNINGS PER SHARE 31.7p 25.5p 19.5 Next Directory Financial Performance 2003 2002 % change à ¯Ã‚ ¿Ã‚ ½m à ¯Ã‚ ¿Ã‚ ½m Sales (exc VAT) 247.1 215.3 +15% * Active customers 1.58m +17% * Printed pages 1, 246 +20% * Disappointing profit growth Next is expected to continue to maintain its solid operating performance and strong free cash flow generation, while carefully managing its maximum potential share buyback of up to à ¯Ã‚ ¿Ã‚ ½600 million during the financial year of 2004. In order to continue this solid operating performance, there needs to be flexibility within the company’s supply chain and stores. Next has to maintain its successfulness of the correct levels of inventory and the capability of being able to respond to changes in fashion with shorter lead times. They need to keep a disciplined and controlled and expansion strategy. Also a relatively simple company structure needs to me maintained to allow successful communication and to allow any problems to be solved together as a team. However, their organizational objectives may not be successful, as the profit growth is rather disappointing. A stronger relationship will need to be built with customers so that they are able to develop a better reputation for excellence and increase brand loyalty of the customers so that they carry out repeat purchases in next as they are familiar with their products and are satisfied with them. Organisational structure Although outside the individual next store the structure seems rather tall, in terms of individual Next stores the structure would most probably be classed as being a flat structure as the store manager is in charge of all of the smaller functional areas, which are then in charge of their own section and their staff. This ensures that the span of control is shared, so managers have a shared amount of people to supervise. This therefore results in equal distribution of workload, so the managers are able to carry out their duties effectively. Also with this flat structure, communication is not as limited as people are more accessible to communicate with, as there are more managers of different areas within the business. However, if there were fewer managers then this would mean that they would not be able to communicate with all members of staff as there would not be enough time available to do so, which may result in lowered motivation levels for the employees. Simplified representation of organisational structure: Chief executive Sales director Regional manager Area manager Store manager Administration Finance Human Research and Marketing Production Resources development Organisational Strength: Next plc’s strength is their adult fashion range, which is for people aged between 20 and 40; these items are sold under their own label. This is their main target group. Although some of Next’s competitors find it difficult to satisfy the needs of this particular segment within the market, however, Next has managed to achieve this successfully in the past by selling their products at relatively low prices. With their label, next associate their good quality of clothes used as well as good workmanship. Because next are using their own brand, they are able to react on consumer wishes very quickly and therefore have total control over the total quality management. Organisational Weaknesses: The e-commerce section can make further gains. Next sees the Internet as an extension of perhaps the telephone in which people can order their product online. It is a simple process, which only really requires the vehicle that will get the orders to the retailer. At present, it is uncertain whether e-commerce will be the future of shopping and if customers are satisfied just sitting on the computer to chose their clothes, however, if the trend in internet shopping goes further, then unfortunately Next would be in a bad situation in comparison to its competitors as its platform isn’t sufficient enough. Another weakness is the concentration of similar type of clothing retail companies on the UK market. This may damage the next if its competitors gain market share or if consumers change their habits and next cannot adapt to these changing trends quickly. To spread into foreign markets could perhaps balance any possible risk of decreasing sales. A policy such as this would strengthen Next’s position if the pound became weaker or if the government decided to join the monetary union. As Next uses democratic management styles, they highlight open communication, which is based on self-managing teams. These teams are able to share the workload of the managers therefore objectives can be met more quickly and efficiently, rather than the manager being left to carry out a load of work with a lack of communication with the staff. Also this high level of communication ensures all members of staff are aware of the task in hand so they are able to provide a high level of customer sevice and can help meet the requirements of the customer. Alternative approaches could be used in order for Next to meet its objectives better: The employees could be given more power and responsibility and make them feel more part of team. This would involve changing the culture, in order to make the staff more of a team. The structure will then be flatter, people will work in teams less of a hierarchy, less feeling of a division between staff and managers. Alternative or more motivation methods could be used so that the employees feel more sense of belonging and feel more included in the business so are happier working there, and this will be reflected in the way they work and come across to customers, which will probably be more enthusiastic and willing to help. Bonus incentives could be a form of motivation, as it will mean that the employees are more willing to work harder and at their best in order to achieve a bonus. Next could also carry out the process of share save, where they buy shares at reduced rates, and therefore have more money that could be spent on expansion of stores or developing new and developed products. Good quality and price This factor is key for success. One way to achieve this object is possibly to look for a supplier who is located in an emerging market to participate at low labour costs. However, this country should have a clothing manufacturing background, for example India, Turkey or Hong Kong, so that it is easy to recruit well-trained employees. Furthermore, the supplier should be a part of the production process, so that stock capacity can be reduced. A quality officer from Next should be at the suppliers at all times in order to guarantee the high quality of clothes. To lower the costs and to gain a better trade position, suppliers should be reduced to a minimum and therefore new price conditions negotiated. This can lead Next to low costs and high quality in the long run. Relationship between next and its environment The green issue is gaining greater importance and Next should aim to make further progress in this area. The production process should ensure that Next guarantees that plants are environmentally friendly. The factories should contain filters so that erosion is reduced and any used chemicals are biologically decomposed. Another area is labour force. Next and its supplies should try and aim their production to be carried out successfully and without child labour. This should be communicated to the customers of Next. Shopping as an event Value should be added for customers, customer care and service should be provided in general. Next should ain to expand their smaller branches into superstores, so that customers are offered special services, i.e. clothing consultancies, childcare. In order to attract more customers and help them enjoy their shopping experience small events should be held. Next could perhaps place a small cafà ¯Ã‚ ¿Ã‚ ½ or resting area in the store for inactive people who are not engaged in the process of shopping. In order for the main aim of â€Å"double digit growth† to be achieved and for next plc to get a better position in the market, a strong brand and good service should help lead to this.