Section B:

Read the case study and answer the questions that follow.

Wolfson looks to leverage Nexts opportunity in ecommerce

Earlier this month, Lord Simon Wolfson celebrated two decades in charge of Next in typically low-key fashion; the milestone was barely mentioned inside the retailers headquarters near Leicester. When he was appointed chief executive in 2001 aged 33, Wolfson was the youngest person to run a FTSE 100 company. Since then, the companys market value has tripled, and it has paid out more than 3.6bn in dividends. In January, when Bronek Masojada retires from the helm of insurer Hiscox, Wolfson will become the FTSE100s longest-serving boss and unlike Hiscox, Next has remained a FTSE 100 constituent throughout his tenure. He has a rare combination of strategic vision, pragmatism and practicality, said Richard Hyman, a veteran independent retail commentator. But Hyman, who considers Wolfson the outstanding retailer in the industry today, warned against complacency: We are still in the foothills of ecommerce . . . its a big mistake to think that having a decent website is the end of it when its just the start. Wolfsons signature achievement has been to take a catalogue and credit operation built by his predecessor and turn it into an online powerhouse that was able to ride out the Covid-19 pandemic better than many more store- dependent rivals. C11CS Page 5 of 7 Semester 1 2021/22 In the year to January 2002, what was then known as Next Directory generated sales and finance income of 360m, around a fifth of the group total. In 2020 the equivalent figure was 2.3bn over half of total sales and achieved without a catalogue in sight. Now, Paul Rossington, co-head of European retail research at HSBC, points to three initiatives overseas expansion, the Label marketplace, and its Total Platform ecommerce solutions business as critical to success in coming years. Next has generally avoided major forays outside the UK, citing the management time and investment required to build store estates and brand awareness. But the rise of ecommerce has lowered those barriers, and Next now regards growing overseas revenues as a way of leveraging the billions already invested in online capability. In the most recent financial year, overseas sales topped 500m for the first time.

Brand strength

Label, the groups online marketplace for third-party brands such as River Island, Ted Baker and Superdry, is another way of pushing more sales through Nexts existing logistics network. What started out as an experiment in selling sportswear generated 464m of revenue in the year to January 2021. Hyman regards Label as a typical Wolfson innovation. He could see that most retailers would give their right arm to have the well-oiled infrastructure Next had, he said. Wolfson was also able to see that while they are all competitors, Next was strong enough to allow them access to that machine. Next makes money from their sales and attracts their customers to its own website. The final extension of Nexts online sales capability is Total Platform, a pay-as-you go ecommerce service for companies that want to expand online but cannot afford the upfront capital costs and the risks. It offers an end-to-end service, rather than focusing on websites and payments or warehousing in isolation, and charges users a simple percentage of sales. Revenues from five initial clients, including Reiss and Victorias Secret, will be modest at about 200m a year and Wolfson is wary of comparisons with online retailers Ocado or THG, whose technology licensing activities increasingly drive their share prices. Rossington acknowledged that it is not yet possible to predict how big Total Platform could be off such a low base without evidence of further contract wins. But he added that over the long term it could become more relevant to the companys valuation than its retail businesses, and it certainly looms large over the groups planned capital spending over the next five years. C11CS Page 6 of 7 Semester 1 2021/22 Despite the focus on ecommerce, Nexts store count has grown significantly, to about 500, since Wolfson took over, and some worry that in-store trading may decline more quickly than the group has projected. Theres a bit of an open debate about the rate of attrition of the shops, said Tony Shiret, analyst at Panmure Gordon. Over the past few years [group] profits have basically been flat despite the massive growth online the stores have become a bit of a drag anchor.

Succession

question Inevitably after such a long tenure, there are questions about succession. When Wolfson accepted a non-executive directorship at Deliveroo this year, his first such external commitment, Nexts share price wobbled despite assurances that this would not affect his commitment to the group. One person who has worked alongside him said Nexts head office in Enderby, a Leicestershire village, also contributed to a campus mentality. You never attend anything or go anywhere, theres no networking like in London, and a lot of people move there when they are young and end up settling down. As a result, executives tend to work their way up the ranks rather than leave. Hyman said this meant the group risked becoming too inward-looking and cast in Wolfsons image. Wolfson looks to leverage Nexts opportunity in ecommerce They need a stronger senior team and Simon needs more challenge, he said. Source: Eley, J. (August 17, 2021). Wolfson looks to leverage Nexts opportunity in ecommerce. Financial Times (online) (cited 7 October 2021). Retrieved from LexisNexis.

Questions 5. Discuss how Next exploited its resources and capabilities to become an online powerhouse using value chain analysis. (Maximum Wordcount = 300) (15 marks)

Question 6. Apart from the strategic initiatives highlighted in the article, discuss other valuable insights value chain analysis could offer Next management about its employment of resources and capabilities. (Maximum Wordcount = 300) (15 marks) Continued on next page \... C11CS Page 7 of 7 Semester 1 2021/22

Question 7. Identify other key resources or capabilities possessed by Next discussed in the article. (Maximum Wordcount = 200)