Profits ‘close to zero’ at John Lewis

The Daily Telegraph - Business - - Front Page - By Ben Woods

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.

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