John Lewis warns of job cuts and scraps bonus
Chairman says retailer will ramp up cost-cutting after inflation hit the company ‘like a hurricane’
JOHN LEWIS has warned of job cuts and scrapped its staff bonus after losses ballooned to more than £230m.
Dame Sharon White, chairman of the John Lewis Partnership, which also owns Waitrose, said it would ramp up cost-cutting after inflation hit the company “like a hurricane”.
The heavy losses mean staff will not receive a bonus this year, with Dame Sharon warning that it will be forced to reduce the size of its workforce as the company races to shore up its finances.
She said: “That’s a massive regret to me personally. It would be difficult enough in any business. It’s particularly tough in the partnership, when everything we do is with one goal in mind: ‘happier people, happier business and happier world’.”
Fewer staff needed
The retailer increased its cost-cutting target from £300m to £900m yesterday. John Lewis said it will achieve this by simplifying its ranges and overhauling how it runs stores to trim out excess roles. This will include installing more self-checkouts in shops and changing how night staff pick orders, meaning it would not need as many workers.
Dame Sharon said: “As we get more efficient, less time has to be spent on processes, things like replenishment of our shelves or nighttime picking for online orders, that means fewer partners.”
The John Lewis Partnership operates an employee-owned structure, with its 74,000 staff known as partners. Dame Sharon told partners that the company could also not “do as much as we would like on pay”. It comes after losses before tax swelled to £234m in the year to January, up from a £27m loss a year earlier. Richard Hyman, an analyst at
Thought Provoking Consulting, said it was clear that both parts of the business – the John Lewis stores and Waitrose shops – were “finding the going very, very tough”.
The company blamed higher shipping, fuel and energy costs, as well as a slump in sales at Waitrose for the downturn. Revenues were down 2pc across the John Lewis Partnership as a whole. It also wrote down the value of its Waitrose stores by £113m because of their poor performance.
At the supermarket, sales were down by 3pc as shoppers switched to cheaper rivals such as Aldi and Lidl and put less in their baskets when they came into stores. Average basket sizes at Waitrose fell by 15pc over the year, compared with a 13pc drop across the wider market. The German discounters, meanwhile, have experienced sales growth of more than 20pc over the past year.
Online shopping boom runs out of steam
Waitrose’s troubles have also been driven by a decline in online grocery shopping following a boom during the pandemic. An average of 170,000 orders were made every week online in the year to the end of January, compared with 213,000 a week in the previous year. John Lewis said that the entirety of Waitrose’s sales decline came from its online business during the latest financial year, while its supermarket sales were flat.
Instead of buying online, customers who have returned to the office are starting to visit local convenience stores more – an area where Waitrose has traditionally been weaker than its rivals. It said it would be working to strike deals with petrol stations, garden centres and local stores to seize on this rebound.
Dame Sharon said the results indicated that the partnership needed to “step up our transformation”. Earlier this week, John Lewis hired its first-ever chief executive, Nish Kankiwala, a costcutting turnaround expert who has been credited with reviving the fortunes of Hovis and Burger King. He has been a non-executive director at John Lewis
Partnership since 2021. Analysts at Retail Economics said bringing in Mr Kankiwala as chief executive was the “latest admission that the turnaround plan is not on track, with significantly more work needed to put the business back on top”.
Range to be scaled back
John Lewis this week said Mr Kankiwala had been brought in to “supercharge” its drive towards profitability. However, it struck a more cautious tone yesterday over when it would swing back into the black
Bérangère Michel, its chief financial officer, said: “We hope we will get to make a profit, we just want to be cautious given the economic outlook.”
Inflation added £179m to John Lewis’s costs last year. Since then, costs have continued to rise in the business, Dame Sharon said, even as headline inflation is starting to fall, meaning John Lewis needed to become “more efficient and productive”.
John Lewis said as well as the potential for job cuts, it also means product ranges will be pared back. The Daily Telegraph revealed last year that Waitrose had stopped stocking some Warburtons products. It is also understood to have reduced the range of yogurts it stocks by 10pc.
Josh Holmes, of Retail Economics, pointed to the risks of making wideranging changes, saying it threatened to undermine its aspirational brand image and result in the partnership “losing further ground to competitors that have been quicker to invest”.
Mr Hyman said that both John Lewis and Waitrose had historically relied upon their “best in class customer service – and that costs money”.
He added: “You really can’t afford to reduce your investment in that side of the business and I would say that they have over recent years.”
John Lewis is also looking to reduce the ranges stocked in its department stores, where it has been battling to revive growth in recent years.
Ageing store estate
John Lewis shut 16 of its department stores during the pandemic but it still has 34 sites and has faced criticism for not taking a more sweeping approach to store closures, particularly for older sites, where it is facing mounting maintenance bills. Rival
Marks & Spencer, for example, made deeper cuts to its estate in recent years and it is now starting to reopen stores again.
Asked whether more store closures could be on the horizon, Dame Sharon said: “Like any great retailer, we continue to review our stores to make sure that we’re in the right place to continue to do a brilliant job for our customers.”
The partnership is under pressure to overhaul its operations and bring its ageing stores up to date – something that, for Waitrose alone, would be expected to cost as much as £250m.
Yesterday, it said it had “catch-up investment to make and has the potential to modernise the business at greater pace” after expanding rapidly between 2000 and 2015 to more than double its number of shops.
It brought in US restructuring experts Bain last year to help on plans to cut costs within Waitrose. John Lewis has also started selling off partnership assets, including its golf course, in a bid to free up cash.
It warned yesterday that its liquidity had dropped by £473m since the end of last year. It has £350m of debt that needs to be repaid within the next two years.