Profits ‘close to zero’ at John Lewis
THE John Lewis Partnership is bracing for a hefty drop in profits and is curtailing its presence on the high street as it plans to grow the business through unique products and services rather than rolling out stores.
The company behind department store chain John Lewis and upmarket grocer Waitrose has warned that halfyear profits could be “close to zero”, while full-year profits would be “substantially lower” than last year, as the bitter conditions for retailers continue to bite. The company said it would close five of its Waitrose stores, including two in London, two in Manchester and one in Birmingham.
Striking a defiant tone, the 154-yearold business said its store estate and online offering outshine its competitors and it would continue to invest £400m to £500m a year as it pursues a strategy of “greater differentiation” over scale.
The update came as it announced a branding overhaul that will see its two companies become John Lewis & Partners and Waitrose & Partners from September, underscoring the company’s unique model, under which the staff own the business.
Sir Charlie Mayfield, the chairman of John Lewis Partnership, said it was important the company “felt the jeopardy” that was engulfing the retail sector and focused on the unique strength of its partnership model.
Sir Charlie said an excess of retail space coupled with inflationary pressures sparked by wage hikes and the weakness of the pound was driving the “level of distress” in the sector. “This is Continued on Page 3
High street names don’t come any more venerable than John Lewis but reputation alone isn’t enough in today’s retail environment as Next, Marks & Spencer and House of Fraser have all found out.
Trading is so tough that the John Lewis Partnership, which also includes Waitrose, has said it will make zero profit in the first six months of the year. Meanwhile, full-year profits will be substantially lower than last year. It is even having to close stores – four Waitrose convenience shops and one small supermarket.
Part of the reason for the poor numbers is higher costs as a result of IT investment, but the company has also blamed market uncertainty.
The whole industry will be concerned to hear chairman Sir Charlie Mayfield, who is usually a calm figure, sounding a rare warning. “This isn’t a blip, it is a major shift and it has a while to run,” he said. John Lewis has always argued that its employee-owned structure is a massive advantage because the interests of staff are more closely aligned with those of the business. It is a model that has made it one of the most successful companies in the world.
Yet it must still respond to the same challenges that every other retailer is struggling with: the rise of the discounters, cut-throat online competition and rising business rates.
Mayfield says it will continue to be different, investing more heavily in own-brand products rather than brands. That is a gamble, but with a long-standing reputation for good prices and excellent service, John Lewis has as good a chance of success as any one.
However, if its problems persist then it will surely be forced to take the sort of tough decisions that other retailers never blink at. Mayfield and staff mustn’t fall into the trap of believing their own hype.