Bellwether retailer Next unveiled its full-year results today, confirming that online is doing better than ever and providing more information on its latest etail venture.

The fashion giant raised its full-year profit guidance for the new financial year, despite a 53% drop in pre-tax profits to £342m in the year just completed.

While store sales tumbled 48% to £954.5m last year, Next said that online sales grew 10% to £2.37bn.

In the first eight weeks of this financial year, Next added that online sales have been “stronger than expected” – up more than 60% compared with two years ago

As online soars, Next chief executive Lord Wolfson described Next’s strategy as “following the money” – such as seeking to build online through its overseas business, the Label branded proposition and the newly created Total Platform.

Launched last year, Total Platform allows retail partners to grow their businesses without the costs, operational risks and time that would be required to build the necessary infrastructure.

Utilising a pay-as-you-go model in which partners pay a commission on sales, it is a low-risk, high-reward way for both Next and its partners to succeed.

Through Total Platform, Next will take operational control of everything from warehousing, distribution networks and call-centre services to payment systems, courier services and website systems, leaving creative control to the partners’ management.

So far, Next has five clients on its books – luxury childrenswear brand Childsplay, heritage British retailer Laura Ashley, global lingerie brand Victoria’s Secret and Reiss (Next has taken a stake in the latter two) – alongside a mystery fashion start-up in which Next also a holding, due to launch later this year.

While only Childsplay and Laura Ashley have been launched so far, Next believes the sky is the limit when it comes to the potential for the platform.

Diversifying risk

Instead of purchasing brands outright and exercising control over creative direction and product, Next has taken a backseat in the Total Platform model. It acts as the service provider.

For that reason, Next has also made the decision to make a limited equity investment in some partner brands, rather than taking 100% to get the best of both worlds: its expertise and the brand’s dedicated and knowledgeable management.

On the flip side, the arrangement also reduces the risk for Next should any of the investments fail and avoids the pitfalls of a conglomerate-style approach.

“I think there are two things – the first is that, in order to diversify our risk, we would much rather have a 20% stake in 10 businesses than a 100% stake in two,” explains Wolfson.

“We don’t want anyone investment to risk making a dent in the company’s finances.”

“Second is, we are buying these businesses as investments; we’re not buying them in order to run them. We will be running the operations side, but we don’t intend to run the business – it has to be run by the manager of the business itself. 

“There are two reasons why we don’t want to actively run them. The first is so we don’t lose focus on Next and the second is so we don’t kill the businesses we’re buying”

Lord Wolfson, Next  

“To that extent, we’re acting more like a venture capitalist where we’re taking a view on the future of a brand and its management team, rather than actively going in and taking over.”

“There are two reasons why we don’t want to actively run them. The first is so we don’t lose focus on Next and the second is so we don’t kill the businesses we’re buying,” he says.

“Our sense is the thing that makes brands special is their independence, and the risk of retail conglomerates is that they end up snuffing out the very thing that they sought to buy – the flair, imagination and independent thinking of the people that run the business.” 

Altogether, the five brands are expected to deliver around £10m of profit in their first year of operations, while Next will rake in an extra £20m from its equity share.

Broader appeal

The development of Total Platform forms part of a wider online shift. While Next has suffered a decline in profits during the pandemic, it has grown and expanded its online customer base to reach a wider range of demographics.

Most notably, its fastest-growing customer segments are the oldest (over-60s) and the youngest (20 and under), which increased 40% and 49% year on year respectively.

Wolfson attributes that to the broad appeal of Next’s ranges and the new brands now found on its website.

With the three launches planned in the next year, Wolfson would not be drawn on how big Total Platform will be, but instead looked to Next’s past innovations as guides.

“The point we’re at pains to make is that the way that Next has operated over the last 20 years when we’ve started new businesses is to try things and make as good a go of it as you can. And where we can, we’ve grown them as fast as possible, and where we haven’t we’ve shut them,” he says, pointing to the success of Label and international.

“To understand the potential of the business, we’ve got to, first of all, implement these five contracts to the very best of our ability, see what effect it has on our partner sales, see what the economics look like when they’re actually up and running, rather than on a spreadsheet because the two are often different, and then we’ve got to see what demand is like. 

“Only once you’ve got all those pieces in place will we have any sense of what the business could or couldn’t achieve over the next 10 years.”

Wolfson is also under no illusions that Next’s approach could not be replicated in future by rivals, but he remains confident in the proposition.

“Ultimately, there’s nothing that one business can do that any business can’t do, but I think we’ve got a headstart in that we’ve got the integration between warehousing, call-centres, stores, retail systems, retail distribution, websites and so on. 

“At the moment, you could outsource any of those things individually but you’d be hard-pushed to source them all in our sector, particularly for specialist products like hanging garments and boxed garments.

“I think we will see a lot of retailers across the world beginning to leverage their infrastructure to sell other people’s brands,” he concludes, citing John Lewis and Asos as examples of those who have already done so.

Total Platform is a new venture for Next, leveraging its strengths to boost its own appeal and help other retailers in the meantime. But since its other businesses have flown in the past, there seem to be few reasons why Lord Wolfson’s latest innovation won’t also pay off in the future.