FUTURE BUSINESS MODEL REPORT NEXT PLC - M2C - Mkspijkers9
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FUTURE BUSINESS MODEL REPORT
NEXT PLC – M2C
1
TABLE OF CONTENT
EXECUTIVE SUMMARY 3
TREND TO FORECAST SUMMARY 4
COMPANY ANALYSIS SUMMARY 6
INTRODUCTION FUTURE BUSINESS MODEL 7
KPI’S 9
STRATEGIC IMPLEMENTATION OF LONG-TERM GOALS 13
FINANCIAL JUSTIFICATION 15
APPENDIX 18
RESOURCES LIST 19
2
EXECUTIVE SUMMARY
NEXT is one of the biggest market leaders in the United Kingdom (UK) with 540 stores in the UK and Eire and 200 franchise stores
overseas. NEXT is a financially stable company, but it is important to note that earnings development should be closely monitored
or costs should be reduced. In NEXT their Annual Report 20171 is stated that the sales are decreasing with -0,3% in 2017. An KPI
of NEXT is that they deliver long term returns through shareholders. Due to investments, shareholders dividend payments will be
temporarily under pressure. This can be a constraint for NEXT. After doing research about the strengths and weaknesses of the
company, there is concluded that NEXT needs to improve their strengths in order to make more profit.
NEXT has stated in their Annual Report 2016 that fast delivery and customer service are their Unique Selling Points (USP).
However, after doing research, the result is that fast delivery and customer service are not differently than their competitors. They
need to improve their USP to differentiate in the market.
The total sales of NEXT Directory (online channel) increased with +4,2% compared to 2017. Unlike to NEXT Directory, NEXT Retail
sales is decreased with -2,9% compared to 2017. In the Statcounter chart (see appendix 1) is striking that mobile & tablet Internet
usages worldwide are increasing with +51.3%. NEXT will make use of the increasing online channel and will pass this through in
their offline shops. Therefore, NEXT will be able to use mobile devices in store to speed up shopping.
To conclude, the main focus of NEXT will be operational excellence. In the new business model, NEXT will focus on the time-
efficient consumer. This consumer has a busy lifestyle. The company will develop itself into the biggest retailer in the United
Kingdom with the best (self)-service in store. A new app will be created for customers and will help them with self-service in store.
Customer service will be improved through a 24/7 live chat on the website where customers can ask questions at any place and
any time. NEXT need to invest in new devices, services and people. In 2018 the profit will decrease with 47% for the investments
of this new strategy. As result, after one year the profit will increase with 192%.
1
http://www.nextplc.co.uk/~/media/Files/N/Next-PLC-V2/documents/2017/Copy%20of%20WEBSITE%20FINAL%20PDF.pdf
3
TREND TO FORECAST SUMMARY
Three-quarters of the world’s population is now connected through mobile phones2 while digital cloud-based services gather more
and more data on customers in every segment. The world is just at the beginning of a data revolution that will touch every
business and every life on this planet. The trend of "big data growth" presents enormous challenges, but it also presents
incredible business opportunities. By the year 2020 the big data market and forecast in the United States (US) increased with 33$
Billion in five years (see appendix 2). When NEXT will improve their digital experience in shops they can automatically use big data
to make their buying process more efficient and focused. For example, the app can record information from the behaviour of the
NEXT customer.
Customers are already fully adapted to the digital environment. They expect to be connected every moment of their lives, through
every device, whether they are consuming news and entertainment or reaching out to their friends through social media such as
Facebook, Instagram and Twitter. Their insistence to stay connected is transforming their personal lives and their willingness to
share everything is changing long-held attitudes about privacy. Their trust is shifting from well-known brands to recommendations
from their closest friends. NEXT has to improve their recommendations because this is important for their customers. 3
The researched trend ‘Point-Know-Buy’ is relevant for the strategic implementation of NEXT which is driven by the technology of
QR. This makes it available to scan whatever you want, to gain more knowledge about it. When we further discuss this
development, we see lots of advantages. This development will give the opportunity to get the right information at the right time.
2
http://www.mckinsey.com/industries/high-tech/our-insights/ten-it-enabled-business-trends-for-the-decade-ahead
3
“Digital Globalization: the new era of global flows”. McKinsey.com. N,p. 2016. Web. 12 June. 2017.
4
Worldwide, self-checkout terminals are projected to rise from 191,000 in 2013 to 325,000 by 20194.
Self-service technology reduces front line staffing costs and increases efficiency by re-distributing displaced staff into other service
dominant areas of the business, but it creates unintended costs. These business costs can be direct, in the form of theft, but also
indirect costs, like reduce customer satisfaction and loyalty. In the last years’ different companies have introduced self-service
technologies. For example, Mac Donalds has implemented the self-service order desk, which is now has in-store kiosks in about
45% of their restaurants in Europe (2016)," McDonald's chief digital officer, Atif Rafiq, told TheStreet in an interview on Friday5.
The most important for NEXT will be that shoppers also gain value from taking control of the transaction – being able to ring up
their own goods and pack them the way they want. This is because a sense of control over their own shopping can lead to greater
customer satisfaction and intent to use and reuse self-serve technology. In addition, self-service can serve four times as many
customers in the same space.
4
http://theconversation.com/the-economics-of-self-service-checkouts-78593
5
http://www.businessinsider.com/self-service-kiosks-are-replacing-workers-2016-5?international=true&r=US&IR=T
5
COMPANY ANALYSIS SUMMARY
NEXT is one of the biggest clothing market leaders in the UK. After doing a company analysis there is concluded that NEXT is
successful because of the broad assortment for a reasonable price compared to the competitors. The success of NEXT is mainly
due to the wide range of brands and products. Their primary financial goal is to deliver long term returns to shareholders in
earnings per share and payment of cash dividends. NEXT primarily focus on financial aspect as seen in the strategy and objectives.
The dividends per share compared to 2016 have no change compared to 2017 and total sales has decreased (-0.3%). A threat for
NEXT could be that shareholders could lose their interest and will invest in more attractive companies.
NEXT has no clear USP comparing to their competitors, but it is strongly suggested that they focus on fast service and delivery. An
opportunity could be focussing on NEXT’s strengths and improve these to have a clear USP. NEXT constantly invest in online
channels. This is reflected in their growing online sales. Their total sales of NEXT Directory increased with +4,2% compared to
2017. Unlike to NEXT Directory, NEXT Retail sales has decreased with -2,9% compared to 2017.
An opportunity would be the use of big data, better communication and targeted product offerings for customers. An important
threat can be the Brexit which could have consequences like trade barriers, exchange rates, changes in tariffs and duties and could
be a risk for the (financial) performance of the company.
There can be concluded that NEXT is a financial healthy company despite the fact that they can further improve their profitability
in order to satisfy the shareholders and improve the company’s performance. The company has lot of strengths and opportunities
especially in their online channel and use of big data. Their position compared to their competitors is relatively good, but NEXT
needs to differentiate itself to have a clear USP.
6
INTRODUCTION FUTURE BUSINESS MODEL
This future business model is presented to NEXT to archive their long-term and short-term goals. The main Key Perspective
Indicator (KPI) will be the introduction of ‘Operational Excellence’. This KPI is based on the strengths of NEXT. By expanding their
strengths, NEXT is able to reach a bigger target group and provide their regular target group a better service.
NEXT will collaborate with International Business Machines Corporation (IBM) to create a new application for the customers of
NEXT. IBM can support NEXT with a software application based on IBM Bluemix6. The new business model is about:
• Focus on a specific target group.
• Fast service in store
• Improvement of customer service
• New design online and in store
With this new business model NEXT will be focused on the time efficient consumer. All new functions on the application will be
adjusted in store. The application will have multiple functions. An important function is speed up purchases in store. Customers
can check the availability of products and can decide to deliver them in store, fitting room or at home. A constraint will be
disruptions in store and slow or not working devices. This is why NEXT will work with an extern software company and provide the
customers free Wi-Fi. To keep the customer satisfied about the availability of the products NEXT has to react on the customer
demand. The application can record the favourites of the customer and the bestseller products. In this way NEXT is able to react
faster on the customer demand.
6
IBM, the cloud-computing service, available at: https://www.ibm.com/cloud-computing/services/ (accessed 16 June, 2017)
7
NEXT can improve their customer service by using a 24/7 live chat on the website. This will be archive by working together with
their customer services in different time zones.
The application is the connection between the online and offline experience of NEXT. By adopting a new Visual Merchandiser
NEXT is able to communicate the same look and feel online and in store.
8
KPI’S
9
10
11
12
STRATEGIC IMPLEMENTATION OF LONG-TERM GOALS
Within five years NEXT will be the biggest retailer in the UK with the best service in store. The main reason for this is the growing
target group of time-efficient customers. On the website of Office for National Statistics is a graphic about the total working hours
of citizen in the UK. This graphic shows an increase of working hours in the last years. (See Appendix 4). These customers are all
very functional focussed and their needs are easy shopping and fastness. NEXT brings this easy shopping and fastness to the
customers by the new strategy. The online takes over offline and NEXT has this within five years totally integrated in their stores.
The NEXT store will be a place where you can shop very fast and purchase through the self-payment systems on the NEXT app.
Also the customers can shop easy because they can ask another size via the app when they are in the fitting room.
The back office of the supply chain does not change radically. In five years NEXT has improved their lead time to be faster. The
only thing NEXT has to add is the information system, which makes the supply chain much more efficient. This means every single
step in the supply chain is recorded and easy to find. This makes the manufacturing process and delivering way faster. This is
needed because of the new service, where enough products should be available. In this way the back and the front office of NEXT
will be connected with the target group.
On the other hand, NEXT will improve the financials within five years. The net profit will decrease in the first year because of the
investments in new campaigns (marketing costs on profit and loss), new systems (information system costs on profit and loss) and
the app costs. 2019 shows, that NEXT has generate more sales due to this new system. 2020 and 2021 are showing a grow in the
net profit. This gives NEXT the opportunities to meet their long-term obligations of ‘meet their short-term liabilities’ and later on
‘returns to shareholders’. See the image on page 9 for the strategic implementation into operational level.
13
Creating an new
app with IBM
Paying with NEXT app
Easy digital use
in fitting room New marketing
(50%) campaign
Introduce information Creating an new function on
system the app, to check availability
of products
Focus on the time-efficient
customer of products
2018
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
New head visual
merchandiser
(offline + online) 24/7 chat on website
and app
Easy digital use
in fitting room Decrease of employees
(10%)
(50%)
Enable external business
of products for social
responsibility checks
2019
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
14
FINANCIAL JUSTIFICATION
15
The financial year 2018 is mostly about investments. The forecasting of sales, COGS and gross profit (+10%)
depends on the annual report which shows growing statics in the previous years.
2018
The costs of 2018 is a results of the new strategy. Which consist of six elements:
• Employee costs: We expect a decrease in employees because of the automation in services. These costs will decrease with
10%, which means fire 1000 employees. All the 540 stores should lose 1 or 2 sales employees replaced by the automation
of the app.
• Marketing costs: To introduce the new strategy and make the statement about the easy and fast new service, NEXT should
invest a huge amount in marketing cost. To provide new marketing campaigns.
• Other costs: To improve the specific target group, we introduce surveys on how time-efficient consumers are. To convince
the people NEXT should offer 200 (2 x 100).
• App costs: To provide the new main channel of next (the app) next should invest 100.000. This costs are only the set-up
costs, after this year the cost will followed with maintenance costs.
• Information system costs: The goal is to have 50% of the 540 stores in the UK and Eire using the app and service in fitting
rooms in 2018. The cost for this information system will be 11 million pound. The costs for this new system will be 5,5
million in 2018.
• Distribution costs: Because the service of the NEXT day delivery with the operational excellence strategy, the distribution
cost will increase with 8%.
• Administrative expenses: These expenses are based on the administrative costs of the annual report 2017. These costs are
fixed thus will be the same.
16
2019
The new strategy is a big investment. In 2019, a year after the introduction of the operational excellence, we expect a growth of
192% of the profit.
• Total sales: The new strategy will increase the total sales with 12%. This is 2% more than 2018.
• Total cost: The total cost for 2019 will decrease with 10,5% compared to the cost of 2018.
• Employee cost: The automation of the new strategy will has reduced the cost of employees in 2018 and this cost will reduce
in 2019 as well with 5%.
• App costs: The maintenance costs for the app in 2018 are £10.000.
• Information costs: The goal for 2020 is to have 100% of the stores using the app. The start-up for the other 50% of the
stores will cost £5,5 million in 2019.
• Distribution costs: Because the service of the NEXT day delivery with the operational excellence strategy, the distribution
cost will increase with 6%.
• Administrative expenses: These expenses are based on the administrative costs for the annual report of 2018.
2020
The profit of 2020 will grow with 104%. With an amount of £990,4 million NEXT is able to complete KPI 2 and 3 to meet the short
term obligations and deliver long term returns through shareholders.
• Total sales: The investment in marketing and the app will result in higher sales. The total sales of 2020will increase with
15%.
• Total cost: The total cost for 2018 will decrease with 9,6% compared to the cost of 2019.
• Employee cost: In 2018 and 2019 the employee costs has decreased. In 2020 the number of employees will be stable and
there will be no changes in costs.
• App cost: To provide a good working app, NEXT has to pay each year maintenance cost for the app. This will be £10.000 in
2020.
• Information cost: NEXT will pay the investment for the information system by the end of 2019.
• Distribution costs: We expect an increase of 2% of the distribution cost in 2020.
• Administrative expenses: These expenses are based on the administrative costs for the annual report of 2018.
17
APPENDIX
APPENDIX 1:
18
APPENDIX 2
Global – big data market & forecast 2014 & 2020
19
APPENDIX 3
20
RESOURCES LIST – ALPHABETICAL ORDER
“Annual Report and Accounts, January 2017 NEXT”. Nextplc.co.uk. N,p. 2017. Web. 14 June. 2017.
“Bestellen en betalen via telefoon: dat levert jouw zaak dit op”. Foodbrigade.nl. N,p. 2016. Web. 16 June. 2017.
“De kosten van een app laten maken?”. Appspecialisten.nl. N,p. 2016. Web. 15 June. 2017.
“Digital Globalization: the new era of global flows”. McKinsey.com. N,p. 2016. Web. 12 June. 2017.
“Fast food workers are becoming obsolete”. Businessinsider.com. N,p. 2016. Web. 14 June. 2017.
“Marketing Strategy”. Frog-dog.com. N,p. 2017. Web. 16 June. 2017.
“Mobile internet uses passes desktop for the first time, study finds”. Techcrunch.com. N,p. 2016. Web. 10 June. 2017.
“Mobile Marketing Statistics compilation”. Smartinsights.com. N,p. 2017. Web. 12 June. 2017.
“NEXT Customer Service”. Help.next.co.uk. N,p. 2017. Web. 10 June. 2017.
“NEXT PLC Reviews”. Trustpilot.com. N,p. 2017. Web. 10 June. 2017.
“Role of EDI in Supply Chain Management”. Tpsynergy.com. N,p. 2013. Web. 15 June. 2017.
“Six ways that the lead times within a supply chain can be reduced”. Linkedin.com. N,p. 2014. Web. 17 June. 2017.
“Solve real problems, IBM Bluemix”. Ibm.com. N,p. 2017. Web. 18 June. 2017.
21
“Ten IT-enabled business trends for the decade ahead”. McKinsey.com. N,p. 2013. Web. 8 June. 2017.
“The economics of self-service checkouts”. Theconversation.com. N,p. 2017. Web. 14 June. 2017.
“The TOURtoDO app”. Tourtodo.com. N,p. 2017. Web. 10 June. 2017.
“Three tips to reduce your supplier lead time”. Tradegecko.com. N,p. 2016. Web. 15 June. 2017.
“UK labour market: Dec 2016”. Ons.gov.uk. N,p. 2016. Web. June 11. 2017.
“Wat is EDI?”. Edibascis.nl. N,p. 2017. Web. 19 June. 2017.
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