Retail Theory and Practice Report: Next Plc's Macro and Micro Analysis

This report provides an in-depth analysis of Next Plc, a major fashion retailer in the UK, focusing on retail theory and practice. It begins with an overview of retail concepts and the company's background, including its market position and channels. The core of the report examines the key changes in the macro environment, utilizing PESTLE analysis to assess political, economic, social, technological, environmental, and legal factors influencing Next Plc. It also investigates changes within the micro environment, applying Porter's Five Forces model to evaluate competitive dynamics, supplier power, customer bargaining power, and the threat of substitutes. Furthermore, the report evaluates potential strategies and tactics that Next Plc could employ to address challenges and capitalize on opportunities within its operating environment, culminating in strategic recommendations. The report underscores the importance of adapting to both internal and external factors to maintain a competitive advantage in the fashion retail industry.

RETAIL THEORY AND
PRACTISE

Table of Contents
INTRODUCTION ..........................................................................................................................1
An overview to the concepts of retail.....................................................................................1
An overview of the company.................................................................................................1
Key relevant changes in macro environment.........................................................................3
Key relevant changes within the micro environment.............................................................6
Strategies and Tactics that could be used by Next plc...........................................................8
Recommendations..................................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Retail is the procedure of selling consumer goods and services to consumers through
multiple channels of distribution. The study is based on retail theories and practises in fashion
retail industry. The chosen company is Next Plc that is the largest fashion retailing brand in UK.
The study will evaluate the key changes in macro environment for the organisation as well as
changes within the micro environment that can influence the company. To meet the challenges
various strategic ideas will evaluate and the report will end up with some essential suggestions.
An overview to the concepts of retail
Fashion retailers involve those industries engaged mainly with purchasing fashion
products such as from various enterprises with the aim of reselling the products to the final
consumers. Retailing is a convenient, credible and easy method of selling services and goods
(Balaji and Roy, 2017). This is as older as the business is but trading has now taken new forms
and shapes. The operation in retailing can be done through physical store or through electronic
channels
An overview of the company
Next is a multinational fashion retailer that is headquartered in the city in England. Next
was founded by Joseph Hepworth in 1864 (NEXT Plc, 2019). The organisation has around 700
stores from which 500 are in UK and 200 across Middle East, Europe and Asia. Next Plc is the
largest clothing retailer in UK by sales. They offer a range of clothing, footwear and home
products. The first Next store was opened on 12th February 1982.
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Next has three major channels;
 Next retail- Retail Chain with 550+ branches in United Kingdom.
 Next Directory- It is a catalogue of home shopping with 3 million+ active customers on
their official website.
 Next International- In this channel they have more than 180 global stores.
Next group have three other businesses as well;
 Next sourcing- This business mainly concern with designing, marketing and buying of
Next products.
 Lipsy- The business chain is mainly doing designing and selling of clothing items and the
target people are young women.
 Ventura- This organisational part of NEXT Plc is a customer service management
company.
The industry need to distribute stock from the storage warehouse to the stores every
week. It performs very well in the past few years and since 1995, their sale have increased with
more than 100% and it had state in their annual report that the sales enhanced by 20% in the last
year (Çifci and et. al., 2016). The Biggest competitor of Next Plc is Marks and Spencer and
Arcadia Group. It is one of the advance and innovative industries in the market and was the first
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Illustration 1: NEXT Plc.
(Source: NEXT Plc, 2019)

company to develop and follow an Internet based home shopping division as a high street
fashion retailer. Everything in the store is labelled with the brand name 'NEXT' and there are no
products sold by any other brand inside the stores. Next plc holds its position in UK retailing
market at 2nd position with 7.1% share and accounted for 69% of the fiscal revenue for the year
2017 the revenue is calculated as 409.73 crores USD.
Key relevant changes in macro environment
All retail organisations operate within a macro environment (Goworek and et. al., 2015).
Changes in macro environment have direct impact on the company and can influence the
business. The macro environment involves technical, economic, governmental and societal
influences (PESTLE Analysis, 2019). A retailer need to understand the role of every influences to
compete within the retail industrial market. Unlike micro environment, companies cannot modify
the macro environment they have to adopt the changes as they arise.
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Illustration 2: PESTLE Analytical Model
(Source: PESTLE Analysis, 2019)

The role of Political factor
The profitability and revenue of NEXT are influenced by government policies.
Governmental laws, policies and regulations can have number of negative and positive effect on
the fashion retail industry (Rashid and Barnes, 2017). The government policies hinder business
by imposing the laws and regulations that increase cost such as integration of new system. NEXT
is heavily relies on government supported transportation infrastructure and roads. The
transportation rates are also increasing with the economic instability that may affect the
transportation of NEXT's goods that bring to the stores that affect the cost of products offers by
the company to its consumers. The changes according to this factor impact the buying behaviour
of consumers. The United Kingdom is a Member state of European Union and fulfils stable
political surrounding that gives a higher range of economic actions to the Next Plc (Sachdeva
and Goel, 2015).
The role of Economic Factors
This is the most unpredictable and critical factors is the economy that consist exchange
rates, interest rates and inflation rates. Change in the density of British pound have influence the
retail industries. Change in economic climate in UK is considered as unstable and it brings short
term unpredictability in the gross revenues of the company (Balaji and Roy, 2017). The rate of
unemployment is also enhancing that decrease consumer confidence and spending power that
decline the sales and forcing retailers to lower prices.
Change in Social Factors
The change in social environment have direct impact on the growth of the industry and it
should be mentioned that people in UK are getting retire early these days and the working hours
are getting shorter (Testa and Karpova, 2018). The average working hours in United Kingdom
have reduced over the past 20 years as the result people have more time to spent on internet and
sources and by personally visiting the shop to compare prices in the high street as well as they
are able to compare better quality of the products offer by various brands and consumer services
provide by retailers. It also includes the change in spending budget of consumers. The major
change that influence the company is the ongoing trend in UK market from the last few years
that is the relaxation of dress codes specially on Friday and organisations and many of the
retailers whether they are physical store retailers or online store retailers adopted 'Casual Friday'
as a day when there is less restriction on dress code. This change and trends influences the
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organisation by affecting the mindset of consumers and operating behaviour of retail industry
(Thompson and McLarney, 2017).
Change in technology
Technology is an important part of retail industry such as Next plc that transformed and
have impact on business environment (Gregory, 2015). It is not just responsible to creates new
products for Next Plc to sell but technology also plays a crucial role in the changing the old or
traditional way of doing businesses. The advancement in technology for instance, the Internet
offer extra shopping option to the retail consumers and give them advantage of shop from any
place and on any time. Internet has come to become one of the most crucial development in
today's world. Thus, it allowed the organisation to develop online business models that
complement very efficiently to the traditional bricks and mortar retail establishment. The change
in technology have also developing computerised billing system for retail industries that
improved Next by enabling retailers to evolve new processes that enhance efficiency (Martino
and et. al., 2016). It also brings the change in point of sale system that allow company to enhance
sales by enabling retailer to activate credit and debit card payment, cash, check, etc.
Environmental factors
Change in environment can affect the operation of NEXT plc. There is a number of
issues regarding the environment recently in UK that have affected the retail sector for in stance;
climate changes, floods, snow storms affect the retail industries. Other than that, there are
various laws and legislation regarding the environment protection that need to be consider by the
firm while their day to day operations. Next is a social responsible organisation and they reduce
their carbon foot prints. Furthermore, they are committed to reducing the environment
degradation by recycling waste, lowering transport emission and bringing change in the
packaging in some of their product. It has been analysed that consumers are more likely to attract
towards the companies that are responsible towards the society.
Legal factors
The firm mainly affects from the changes in the legal laws and policies that are
mentioned or modified by the local government. The government of UK recently increased the
VAT charges from 17.5% to 20% that affects the company that mainly have impact on the
pricing of the products due to higher operating cost. Also increase in minimum labour rates in
UK and in the countries where the organisation manufactures their products force company to
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spending more on the wages. Along with it, employment laws, other tax policies, safety and
competition regulations have direct effect on the margin of the profit, behaviour of the
employees. The company is complied with both UK and EU law and both the laws of the regions
are different after Brexit that affect the company.
Key relevant changes within the micro environment
Micro environment can be controlled and managed by the organisation. It generally has
direct or indirect impact on the retail industry and are able to influence the organisation on daily
basis (Porter's Five Forces of Competitive Position Analysis, 2019). It is essential for the
company to monitor and analyse all the elements of the micro environment such as competitors,
customers, etc. It can be analyse by Five Forces Model that is developed by Michael Porter. It is
a strategic management tool that help the industry to understand how five competitive forces
influence growth and profitability of the company.
Bargaining Power of Customer
The power of buyer is the most affecting part of the retail industry as the sales and
revenues are drive mainly from the final consumers (Çifci and et. al., 2016). They are able to
down prices or switch retailers and the consumer are more price sensitive and they want better
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Illustration 3: Porter's Five Forces Model
(Source: Porter's Five Forces of Competitive Position Analysis, 2019)

quality at affordable price. Generally the consumer's behaviour is strong and loyal towards Next
plc and they don't usually bargain prices from a good and trendy outlet or catalogue and consider
to pay the tag prices with the acceptance of superior quality of the products.
Bargaining Power of Supplier
The industry purchase in bulk that remain the power of supplier low and they are non-
dependence on single supplier (Goworek and et. al., 2015). The power of supplier does not
influence the company as much. Suppliers are in dominant position that is responsible for
decrement the margin NEXT Plc can earn in the market. Although the power is low but it can
lower the profitability of the company.
Competitors
The fashion industry face many competitors who sell very similar products where is no
concept of brand. If the competition amongst the existing players in the organisation are intense
then it will let down the prices and can affect the total profitability of the company. NEXT Plc
operates in a competitive industrial environment of retail(Gregory, 2015). The top competitors of
the industry are Mark and Spencer, ASDA Harry Corry, John Lewis and Dunelm group. It is not
high -end fashion retailer like Zara or Mango and also it is not low as Primark. This is the
challenging position as the company to differentiate.
Threat of substitute products
When a new product or service reach a similar consumer need in various ways,
company's profitability suffers (Martino and et. al., 2016). The threat of substitute products in
Next Plc is low as they provide all the products under their brand that no other can provide same
quality product at affordable price and use the brand name. The behaviour and attitude of
consumer towards the retail industry develop this threat for Next plc. Also all the products that is
offered by Next is patented with their brand label. Thus, availability of substitute products in not
a big issue and threat for the company.
Threat of new entrants
The company is moderate not high-end and not low that makes difficult it to differentiate.
New comers in the retail fashion industry brings modern ways, innovation of doing business and
handle consumers that put pressure and influence Next Plc. New entrants also mainly focuses on
lower pricing strategy and cost leadership strategy and provide new value to the clients that can
be a threat for the company(Rashid and Barnes, 2017).
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Strategies and Tactics that could be used by Next plc.
The main aim of the company is to accomplish the development of enterprise and to
attain desired market share and to grow by managing the barriers effectively. In regarding to
attain the objective of business, corporate entity has designed many strategies that can provide
better result to the industry for succeed (Sachdeva and Goel, 2015).
From the macro environmental analysis the major influencer for Next Plc is change in
societal factors and change in technology and To tackle the changes retail industry can
implement various strategic ideas in the business;
 To tackle the change in Social factor- Organisation should develop various strategies
and that can help them to meet consumer requirement and current trend (Testa and
Karpova, 2018). As per the evaluation the current trend is demanding for relaxation of
dress codes, the industry can take advantage of the emerging and ongoing trend and
provide casual wear outlet in the stores on Friday with providing some discounts. They
can also provide discounts on their online website as the name of “Black Friday Sale”
that will help them to continuation with the change and overcome the influence.
 To tackle the change in Technology- Technological change mainly emerging in
Internet. To tackle the change they should develop strategies to take advantage of this
technological change. They can use the technological advancement in providing services
and products to its customers (Thompson and McLarney, 2017). They can invest in
research and development to take the advantage of change in technology.
From the micro environmental analysis the major factor that have been evaluated is
power of buyer and threat of competitors that influence Next Plc. To tackle the changes and
influences company can implement various strategies.
 To tackle the consumer behaviour- Next Plc. Should build a huge base of consumers
that will be beneficial in two ways. It will reduce the level of the power of customers and
also give a chance to the firm to streamline its production and selling process. They can
change or improve their pricing strategy.
 To tackle the threat of competitors- To tackle this threat, company could use pricing
policies and strategies (Balaji and Roy, 2017). They can provide discounts and
allowances better from its competitors. They can give quantity discounts or trade
discounts or cash discounts. They should innovate various technologies and should
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concentrate on service orientation rather than product orientation. By building a
sustainable differentiation strategy they can beat the competition in the market. They can
also do collaboration with their so called competitors. This will expand the market size
rather than do competition in small market (Çifci and et. al., 2016).
Recommendations
There are some more suggestion that can be used by the Next Plc. To meet the
challenges;
Next Plc. Should develop some effective marketing strategy to overcome the challenges
(Goworek and et. al., 2015). They should do continuous innovation and research and should
experimenting with design of their products so whenever prices will increase of one raw material
they can easily shift to another supplier and to attract consumers and grab their loyalty towards
the company. It is essential for them to understand what is the need of consumer rather than what
customer is buying in the fashion market. Next plc can bring down the negative impact on the
environment by providing proper information of how to dispose of products correctly (Gregory,
2015). They need to upgrade with their product catalogue and outlet with the changing trend and
consumer demand. It is suggested to the company to improve their online marketing as they
recently introduce the online website. To meet the challenges they need to develop corporate
entity effectively that is capable to provide range of quality products to the consumer, initiates
company for innovative products.
CONCLUSION
From the present study it has been concluded that retail industry should understand the
theories and practises and analyse the changes effectively in the macro and micro environment.
For analysing the change in macro environment PESTLE analysis has been used and for
analysing changes in micro environment, Porter's five forces model has been selected. Next Plc.
Is a very well known fashion retailer in UK and there are many changes that influence the
growth and profitability of the industry. Various strategies and tactics including theories, ideas
and concepts, etc. also evaluated that can be used by the company to overcome or tackle the
changes and influences. Along with it, some important suggestions are given from the previous
evaluation that the retailers could use to meet the challenges.
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