“Inflation has hit us like a hurricane” was the stark verdict from John Lewis Partnership chair Dame Sharon White as the retail institution slid to a £234m pre-tax loss.
The group, which includes grocer Waitrose as well as the John Lewis department store division, is embarking on the third year of White’s transformation plan as she seeks to turn around the venerable brand.
While progress has been made, reflected in higher customer numbers across the business, costs rocketed nearly £180m year on year, holed profitability and made payment of the retailer’s famous staff bonus impossible.
White’s transformation plan has been adjusted as a result of the high-cost environment and a new mantra is in place at the partnership – “cost out, margins up and customer focus” – as the retailer seeks to turn annual sales of £12.25bn into profits.
The retailer has tripled its efficiency savings target from £300m to £600m by January 2026 after making savings of £300m over the last two years.
But what does an overarching focus on cost mean for John Lewis staff, customers and suppliers?
Job cuts imminent
For employees, job losses are once again on the agenda, which would be on top of 1,000 roles cut in 2021. White and other JLP chiefs today resisted putting a number on any further reduction in staff numbers.
White says: “As we get more efficient, as less time has to be spent on processes like replenishment of our shelves, like hand-picking of online orders, that inevitably means less time – and that inevitably means fewer partners.”
Retail Week senior analyst Beth Bloomfield observes: “With partner morale undoubtedly subdued after the cut of this year’s bonus, any further restructuring must be delivered with care and compassion if it is to retain talent. With Marks & Spencer investing in its employees, this could be a real threat.”
While there may be an uncertain mood among staff, the leaders of John Lewis and Waitrose are confident that efficiencies will result in a better business.
The types of changes made so far include technology implementation, improved pick-rate productivity at Waitrose and negotations with suppliers on the cost of goods sold at both divisions. Margin enhancement has come from initiatives such as packaging changes at Waitrose and range optimisation at John Lewis.
More of the same is likely. Waitrose executive director James Bailey tells Retail Week: “A lot of what makes a business efficient and productive is about how well it works the value chain from end to end, and that’s more about efficiency than cutting quality or changing the relationship with suppliers.
“This is a business with improvements we can make in a lot of the systems, lots of leftovers in the way we work with our supply base. There is a clear path to that without even having to start to consider an impact on suppliers and certainly not on the quality of product, which we’d never do.”
Sourcing and prices
John Lewis interim executive director Naomi Simcock says opportunities lie in areas such as “changing our sourcing strategy, in particular on own-brand, looking at some of the places we source from to take out some of the risk around freight costs so bringing some sourcing back to nearer shore.
“Also, looking at some of the best practices around retendering and some rationalisation of our supplier base but really carefully. We’re listening to our customers about some of the ranges that are probably not the most productive for us to sell.
“The other big area where we’ll see investment is around technology to improve areas like stock loss. We’re pushing out the rollout of radio frequency identification (RFID) so we’ve got visibility of stock and where some of the risks are in the system.”
Both Simcock and Bailey point out that while efficiencies are crucial, both businesses continue to invest and adapt. Waitrose has lowered prices and is developing new propositions with partners such as garden centre group Dobbies and Shell as it aims for a bigger share of the convenience market.
John Lewis, meanwhile, has overhauled its price architecture, including introducing the Anyday value range, and unveiled a new trial, small department store format.
Bloomfield is unconvinced that the partnership has got the balance right between cost-consciousness at one end and great retailing and customer experience at the other. She says: “JLP should invest more money in its retail division if it stands to gain both now and longer term. While it has signalled its intent to update its Waitrose doors, it has yet to reveal any concrete plans to review its department stores.
“With M&S investing nearly £500m in its stores, JLP risks its customers defecting to other retailers. It needs a clear strategy for retail, which as yet it has not delivered; more discussion around what ‘customer focus’ really means is needed.”
The results came as the partnership’s first chief executive, Nish Kankiwala, prepares to take the reins. White says a focus for him will be “the supercharging of our efficiency programme… also continuing to surprise and delight customers. Nish will help provide some ballast in terms of pace and execution.”
Despite being caught in the eye of a storm, White is emphatic that the partnership has a “clear path to profitability”. But only when efficiencies are achieved can appropriate profit be made from that £12bn of revenue.
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