Analysis: Where next for John Lewis under new boss White?

Presenting her first set of results, new John Lewis Partnership chair Dame Sharon White sought to strike an upbeat tone and present a vision for the future.

While she acknowledged that losses, particularly from John Lewis department stores, had been at the low end of expectations, she said the partnership has “considerable advantages as a business going forward”.

Despite the upbeat tone, White said the partnership would be conducting a strategic review, the results of which will be published in the autumn.

Details of what exactly the review would look at were thin on the ground. One analyst suggested the review had been tactically announced to give White and her team a six-month window “to sort itself out”.

Despite keeping her cards close to her chest, White did outline some areas that John Lewis would seek to address.

Store rationalisation

One is the store estate.

In her letter to partners about the results, White said the partnership would close three Waitrose stores later this year at Helensburgh, Argyll and Bute in Scotland, Four Oaks in the West Midlands, and Waterlooville in Hampshire as they were “no longer viable”.

Building on that, while White wouldn’t be drawn on the number of store closures, she said that the entire estate would be reviewed. Alongside possibly closing stores, White said that the partnership would also aim to combine John Lewis and Waitrose stores to cut down on space.

“Bringing the two brands together is an opportunity to have more John Lewis and Waitrose stores operating in the same footprint”

Sharon White, John Lewis Partnership

 

 

“We’ll be looking at scaling back some stores where we have too much space – as we’ve already done with Waitrose Cheltenham and John Lewis Peterborough. Bringing the two brands together is an opportunity to have more John Lewis and Waitrose stores operating in the same footprint.”

White says having more dual stores would add “great value for customers – whether that’s through collecting John Lewis parcels from a Waitrose store or shopping for Waitrose in the basement [of a John Lewis department store] before heading upstairs to homewares”.

However, analyst Nick Bubb questions how many Waitrose stores could be folded into John Lewis. “It’s hard to think of many where they could transfer a Waitrose, where there isn’t one already.”

Lead analyst at GlobalData Sofie Willmott says the focus will likely be on closing some of John Lewis’ 50 branches, which she observes are “large and costly to run given the stock needed to fill space”.

She also points out that “a significant chunk” of John Lewis sales are already made online, so “the retailer can afford to streamline its estate and cull non-profitable branches without taking a big hit on sales”.

White also hinted that, as part of the review, the partnership’s ‘never knowingly undersold’ promise to customers would be looked at and possibly “modernised”. 

Online investment

White was particularly enthusiastic around the prospect of growth for the partnership’s online businesses and highlighted potential at Waitrose.com in particular.

She was “bullish” about Waitrose.com and said the partnership would also invest “significantly” in John Lewis online and its home offer.

White maintained that John Lewis had “lost a bit of ground on homewares” in the last few years but was positive about some new designs she’d seen this week that would be ready for September.

Both she and chief financial officer Patrick Lewis pointed out that Waitrose.com was currently outperforming.

“On the Waitrose side we’re up against the wider market,” said White. “It may be too early to judge, but there’s a question if consumers are moving towards trusted brands at a time when there’s a lot of uncertainty in the market.”

In May last year, Waitrose outlined plans to open three new customer fulfilment centres and its strategy to grow its online business to £1bn a year by 2022.

However, those targets were published off the back of what proved to be a short-lived partnership with fulfilment start-up Today Development Partners, which was dissolved in September last year. Waitrose has since expanded online delivery fulfilment to a further 24 “strategically placed stores” across the UK. Once completed, the latest round of upgrades means that Waitrose will be able to fulfil online grocery deliveries from more than 170 of its stores.

RTR analyst Richard Hyman says that given Waitrose’s deal with Ocado is due to expire in September, the “clock is ticking”. He also questions whether the business has the financial muscle to deal with Marks & Spencer.

“M&S, being a public company, has got the wriggle room to throw money at online in a way that Waitrose may not.”

He also stresses “it’d be handy if they had a leader”, after the departure of former Waitrose managing director Rob Collins.

In October, then chair Sir Charlie Mayfield unveiled a sweeping restructure of how the two brands would work – running both the department store and grocery businesses as one. The move saw both Collins and former John Lewis managing director Paula Nickolds depart the business. 

White was cautious when asked about how much of Mayfield’s restructuring she would be tearing up. She said she was a “great supporter of the principle of bringing together the two brands” but was keen to emphasise she saw the future of John Lewis and Waitrose as “two very distinctive brands”.

Focus on services

White also saw an opportunity for the partnership to offer more services to customers.

“The review will consider what more we need to do to strengthen our core retail business and what new services we’ll deliver outside retail. We’ll focus on areas where we can offer customers exceptional service, quality and value,” she said.

The business has been more services-oriented for a number of years. In June 2018 the partnership bought home improvement business Opun, which it said at the time would “improve our capability in the home services market”.

Later that year, it appointed Sean Allam to be its first-ever director of services as it sought to extend its services into finance, home insurance and improvement.

Bubb questions what services the partnership could hope to offer beyond those it already does.

“Anything obvious for the partnership to have done in terms of services they would have already done in the last 10 years”

Nick Bubb, analyst

“It’s not really obvious to me what they can do beyond financial services. Travel insurance, maybe? They’ve obviously looked at experience,” he says. “Let’s put it this way, I don’t think they are planning for kitchen installations or anything. Anything obvious for the partnership to have done in terms of services they would have already done in the last 10 years.”

Shore Capital analyst Greg Lawless, however, believes more focus on services could pay dividends – at least in theory.

“To be fair, putting products and services together isn’t a bad place to be. It would give them a massive point of difference, but it’s easier said than done.”

White’s announcement has left as many questions as answers when it comes to the future of the John Lewis Partnership. That a review of the business was necessary, critical even, isn’t up for debate. Quite what its new chair has in mind for the short term, however, is less clear.