John Lewis Partnership: Transformation is delayed, but has any recovery progress been made?

On the plus side, the group – which owns grocer Waitrose and the John Lewis department stores business – cut losses before tax by 41% to £59m. On the flip side, however, completion of the transformation plan initiated by chair Dame Sharon White will take two years longer than originally anticipated.

Why the delay?

John Lewis unveiled its transformation plan for JLP in October 2020, setting out the ambition to generate profits of £400m by year five through initiatives including expanding digital capabilities, launching new revenue and earnings streams such as financial services and housing rental, and making its two core businesses more complementary. It envisaged investment would be funded by efficiency savings.

The plan will take longer to complete, JLP has now confirmed — the new date is 2027/28 — because of the impact of inflation and higher-than-expected investment requirements.

While full completion is delayed, JLP said it should return to profit before that – although an exact date wasn’t given. The plan refers to what JLP calls “sufficient profit” but finance director Bérangère Michel was at pains to point out: “We expect we will return to profit much earlier than that.”

White said: “JLP has a longstanding productivity deficit… that has been thrown into sharp focus by the cost-of-living crunch. Performance is improving. We’re confident, and there’s also a long road ahead.”

The push into services beyond traditional retail also may take longer to bear fruit than hoped.

White said: “Diversification remains an important goal. The 40% [of profits from outside retail by 2030] target remains a long-term goal and we’ll have to see whether that also has a bit of a delay, but it remains as strong an aspiration as it did.”

Efficiency savings totalled £308m to March this year, and £31.2m were achieved in the first half in areas such as margin efficiencies and supplier negotiations. JLP said it would also make an additional £600m of efficiencies over the lifetime of the plan.

New chief executive Nish Kankiwala said: “We’ve had positive trading momentum in a very competitive environment and quite fragile consumer background. But we’ve had 600,000 new customers across JLP.

“In terms of our transformation plan, we’ve delivered some very good progress in three key areas. [Firstly,] simplifying our business – examples are the delivery of our simpler shops programme in Waitrose, which is fundamentally about aligning partner time with customer time; in John Lewis, it’s about managing the range and making sure it’s more rationalised.

“Secondly, reinvesting margin improvements in lower prices across goods for sale and goods not for resale – that’s been a very important part of our investment in lower prices at Waitrose.”

Finally, he said, the group had been making it “easier to shop”, for instance through the implementation of ‘scan, pay, go’ at Waitrose and the adoption of the John Lewis app.

“Profitability looks better but it has been stripping out costs like there’s no tomorrow – definitely achieving cost reductions but the cost to the revenue line remains to be seen”

Richard Hyman

Retail analyst Richard Hyman said: “Profitability looks better but it has been stripping out costs like there’s no tomorrow – definitely achieving cost reductions but the cost to the revenue line remains to be seen. There needs to be investment in both sides of the business.”

Analyst Nick Bubb observed: “The big question for me is why the overall JLP loss was only down by circa £12m when the Waitrose operating profit recovered by £73m. And John Lewis was only down by £18m, so the answer is that the amorphous central costs line was well up, despite all the talk about the efficiency drive.

“I’d still say break-even for the full year is a reasonable target for JLP, despite the pressures on John Lewis, but obviously it’s very unsatisfactory that a group with sales of £10.75bn ex-VAT can’t make any money and it’s clear that the long-term structural problems remain.”

Trading dynamics

Waitrose was the stronger performer, achieving a trading operating profit of £504.4m versus £431.7m previously, while John Lewis’ trading operating profit slipped from £295m to £277.1m.

Waitrose’s sales advanced 4% to £3.7bn, driven by an average item price up 9% as volumes declined 5% – although volumes improved as the half progressed. The grocer invested more than £100m in price in the half. 

At John Lewis, sales were down 2% to £2.1bn. Fashion and beauty performed best – up 3% and 2% respectively – but home and technology fell back 5% and 4% respectively as the cost-of-living crisis took more of a toll on bigger-ticket categories.

Shop sales were up 2% as footfall rose and stores enjoyed an ongoing post-pandemic bounce, while online fell 4%.

Retail Week Prospect analyst Beth Bloomfield was puzzled by the lack of reference to the John Lewis Anyday range in the results – it was launched in a blaze of publicity and its success has been flagged on previous occasions.

A spokesman said it was decided to focus on newness at this set of results because brands were doing well for the retailer, but that Anyday now accounts for 14.6% of own-label sales – up from 11.5% when it launched two years ago – and that frequency of Anyday purchases was up 7% year on year.

“It’s not a surprise that people aren’t buying sofas, but when will home turn around? It’s high-margin so when it falls it affects the business”

Beth Bloomfield

Bloomfield added: “It’s not a surprise that people aren’t buying sofas, but when will home turn around? It’s high-margin so when it falls it affects the business.”

She also observed that there was little about the performance of the overhauled John Lewis Horsham store, seen as a test-bed and blueprint for better branches and opened as stores are doing well as the pandemic online boom moderates.

She said: “JLP had a big bet about online being where customers were going to go. What is it going to do to keep customers coming back to stores?”

A spokesman said that, since making changes at Horsham earlier this year, sales at the store have been up between 14% and 16%, and that the retailer continued to evaluate how best to develop formats.

The past few years have been turbulent for JLP, but staff were said to be on side despite issues such as the investment controversy, uncertainty over the famous bonus scheme and changes to hours at Waitrose to improve productivity and serve customers better.

Despite the challenges, JLP said morale was high among staff.

White said: “What makes this business unique is we’re not just employees, we’re owners. Some decisions aren’t easy but I think there is a huge level of understanding about the opportunities and a growing sense of confidence.

“The point of the plan is that we can get to sufficient profits so we can do more for our partners and customers, so I think we’re pulling in the same direction.”

Waitrose executive director James Bailey said: “Most people I’ve spoken to at Waitrose are energised by the changes we’re making. The changes we need to make are tough but the opportunity is there for the taking. I wouldn’t characterise morale as anything other than positive.”

Hopes high for Christmas

JLP typically makes three-quarters of its profits during the golden quarter and bosses are confident about this year’s prospects.

Bailey said the business was well set up for the period, while commercial director Kathleen Mitchell said: “We’ve got brilliant, beautiful products and we’re well positioned to delight our customers. Our autumn/winter collections are strong.

“Our home range is bursting with new products that are already selling fast. In tech, autumn kicks off with a new Apple launch. We’re expanding our ways to pay with interest bearing credit to help customers spread the cost of purchases.”

Visits to the John Lewis online Christmas hub are up 30% this year and the retailer expects to sell 40,000 tickets to its Santa experiences, 25% up on last year.

Kankiwala said: “Christmas is going to be great. We have phenomenal plans in both brands. From what we’re hearing, people are waiting for Christmas. I think it’s going to be a really good celebration this year.”

While JLP may take heart from reduced losses and Christmas hopes despite the transformation delay, there is still much to do and trading conditions remain tough.

Kankiwala is new to his role (JLP not having had a chief executive before he took the position in March this year), and there is no word about a permanent boss for John Lewis (Naomi Simcock still holds the role on an interim basis). 

Hyman said the results “certainly showed progress but that progress needs to be treated with caution”.

“The business is disproportionately skewed towards the second half and it’s early days in the recovery,” he added.