Next Offers Total Platform Service
Next Plc Company Number 4412362, is a powerhouse British multinational clothing company, having a turnover for the year ending January 2020 of £4.4 billion. A sizable sum of £2.1 billion, or nearly 50%, came from e-commerce. The brand’s 2020 profit before tax was £728 million of which 55% was derived from e-commerce.
In April 2020, Next announced that it will become an online host for other fashion brands. Next’s service, called Total Platform, will enable brands to piggyback off its own e-commerce expertise, as explained by the retailer’s CEO, Simon Wolfson:
“What that means is, not only will we run their website, but we will also do all their warehousing, distribution, returns, call centre work, customer credit, international sites, we will do absolutely everything that is involved with selling to customers.”
Besides selling its own products online, the company also offers mid-range priced clothing, shoes, and accessories by brands such as Armani, Ted Baker, Barbour, Versace watches and Karl Lagerfeld Kids apparel. Next is also an internet perfume retailer for Bottega Veneta, Burberry, Jimmy Choo, and other luxury fashion brands.
Does Next’s strong online presence, a business model that doesn’t entail purchasing any stock or the risk associated with such, and its Total Platform venture pose a more significant threat to Farfetch than Yoox or Matches Fashion, the other major players in online luxury fashion retail? Only time will tell.
More than an Online Platform
Next will commit to running a brand’s website, ensuring a branded URL, and containing the look and feel of the label. Each brand will design its website and have creative control over it, but it will link into all the other elements of the Next platform in exactly the same way as Next’s own website does. Next has already trialled the platform via a separate website for Little Label, the Amsterdam-based retailer of children’s clothing. According to the Telegraph, Next has made a deal with an unnamed retailer, raking in a turnover of £30 million via Total Platform.
Wolfson sees Total Platform as a means for small brands to launch into e-commerce or to expand their online presence. The service is not earmarked for luxury brands only, giving Next a competitive edge over the likes of Yoox and Farfetch.
Next not Alone
In 1999, Next launched its e-commerce website, extending the brand’s business strategy to ‘One Brand; Three ways of shopping.’ Next, however, was not alone in the endeavours of online apparel retail. Net-A-Porter, founded in London in 2000, was the pioneer of internet sales of luxury fashion. Initially, founder Natalie Massenet bought products wholesale and then sold them online. Matches Fashion, founded by Tom and Ruth Chapman originally as a brick-and-mortar outlet in 1987, rebranded to MATCHESFASHION.COM in 2013 and began operating primarily online, while still retaining boutiques in London.
The Farfetch Business Model
In 2007, Farfetch was founded by José Neves. Unlike Net-a-Porter and Matches, Farfetch does not carry any stock but is simply showcases the work of 700 plus designers and offers items at the same price as on the brand’s website. The designer’s brand is solely responsible for the packing, shipping and returns of all items. As part of the deal, all packaging must be Farfetch-branded. Farfetch receives a reported 30% plus cut on each sale.
How is Farfetch Doing?
Unlike Next, Farfetch is registered in the Cayman Islands. The company’s revenue for the year ended 31 December 2019 was £785 million, only approximately 33% of Next’s online turnover. Despite generating reasonable revenue, the brand suffered a loss before taxation of £287 million, more than doubling the loss of £123 million from the previous year.
In July 2019, Conde Nast, the global media company and publisher of Vogue, sold its £234 million stake in Farfetch, amid concerns of excessive marketing spending by the company. Farfetch apparently justified this spend by claiming that customer engagement and technology investment was critical for future growth.
Farfetch’s first-quarter revenue for 2020 seems to prove that online marketing efforts reaping the rewards, as it the case for many web-based retailers during the COVID-19 pandemic. The company has stated that is digital platform gross merchandise value (GMV) increased by $80.2 million to $494.9 million, reflecting a 19% increase. Of this good news, José Neves said:
“The investments we have made to build the global platform for the luxury fashion industry have been paying off, enabling the continuity of our operations and delivery of our strong first quarter 2020 results.”
Farfetch on the NYSE
What about Farfetch on the stock market? When the company floated in September 2018, share prices were pitched at $28.45. On 31 December 2019, before the days of COVID-19, the share price had plummeted to $10.35. There has been a positive turnaround this year, however, with a stock value of $15.54 as of 14 May 2020. This is due to people being stuck at home with no option other than to buy online.
What about Matches and Net-A-Porter?
While not exactly gloom and doom, the prospects for MATCHESFASHION.COM don’t look bright. According to the accounts filed at Companies House for the year ending 31 January 2019, the brand realized a revenue of £372 million, up from £292 million. The bad news is that the operating profit, while still in the black, collapsed to £2.5 million, down from £23 million in 2018. This massive decline can partly be attributed to a decrease in gross margin, being 42% in 2018 and falling by 3% a year later costing about £30 million in profit. Moreover, in 2018 Matches significantly expanded its physical presence, opening locations in Mayfair and the Olympic Park in London, and relocating its Hong Kong store. The brand also made a voluntary US sales tax payment of £4.4. million in that year.
Matches have had issues with paying brands due to the implementation of a new accounting system that has delayed payments for up to 6 months. This practice is unacceptable at any time and even more so now due to the economic impact of the COVID-19 pandemic.
For Net-A-Porter, the picture is not a pretty one. Although turnover rose to £711 million for the 15 month period from £641 million in the preceding 12 months period, a pre-profit of £59.2 million culminated in a massive loss of £10.4 million in the 15 months ending 31 March 2019.
Net-A-Porter’s losses have been hindering the growth of parent company Richemont. Partly to blame is the major technology overall that the Yoox-Net-A-Porter Group has undertaken, that was designed to double sales in 5 years. In August 2019, the Net-A-Porter logistics warehouse in Italy was severely affected by a storm and inexplicably forced to shut for several weeks. This equated to losses of hundreds of millions of pounds.
LVMH CEO and Chairman Bernard Arnault seemed to write off the whole concept of multi-brand online retail in January 2020. He told investors that “all of them are losing money … the bigger they are, the more money they lose.”
Why Choose Next?
With Net-a-Porter, Farfetch and MATCHESFASHION.COM firmly established in the realm of online luxury retail, why then would Next want to dip its feet in these chartered waters? Perhaps the key to answering this question is the word ‘luxury.’ Next will avail its online services to all brands, not only those with a high-end price tag.
There are other considerations, too. Next has massive, robust, and reliable distribution logistics, making UK deliveries potentially seamless. A further advantage of Total Platform for small, start-up brands is that they can focus on design and in-store retail, leaving all the complexities of e-commerce and warehousing to Next.
As an astute individual who possesses sound business acumen, Simon Wolfson is not to be underestimated. Of the Total Platform, he has modestly predicted:
“In five years’, time you may look back and say ‘I remember that Total Platform’ business and it may have come to nothing other than provide one client with a great business. On the other hand, it could be one of those ideas that in five years’ time people will look back and go, ‘oh my gosh, that was an important moment’.”
