As the John Lewis Partnership (John Lewis and Waitrose) approaches the midway point in its five-year Partnership Plan – an ambitious strategy launched in 2020 through which it is targeting £400m profit by year five – is it on track to achieve its goals? The Retail Week analyst team investigates how its department store arm can succeed in a challenging retail environment
1. Restructuring, resizing and reshaping
One way that John Lewis has adapted its business model in recent years is through the “rightsizing” of its store estate.
In its 2020/21 results, chair Dame Sharon White said: “There is great opportunity for retailers who have an intimate understanding of their customers to respond to them in an agile fashion.”
Group profits were under pressure. The Partnership plunged to a £517m pre-tax loss in the year to end January 2021.
At the John Lewis arm, it had started a transformation project to simplify its structure for the future, reducing partners (employees) in its head offices and stores.
Some 16 stores never reopened their doors after the pandemic. The retailer slimmed its estate to 35 stores by the end of 2021 in a bid to resize its estate for the future.
It had aggressively expanded its store estate the previous decade, introducing a variety of new formats including smaller department stores, John Lewis At Home shops and travel outlets in St Pancras International and Heathrow’s Terminal 2 – now both shuttered.
John Lewis employee numbers peaked at about 29,300 in 2016/17, reducing to 21,200 by 2021/22 as it moved through the restructuring process.
White envisaged a “digital-first” business, where John Lewis generated around 60-70% of sales online versus around 40% pre-Covid.
While retaining a focus on quality and value, it is investing in “inspirational new services” such as rental and finance to drive 40% of profits outside of retail by 2030.
Profit recovery was deemed to be achievable by 2023-25, with JLP seemingly rising to the challenge, delivering profit before exceptionals of £181m in 2021/22.
Yet towards the end of last year, John Lewis warned it needed “a substantial strengthening of performance” in order to deliver sufficient profit for the year to pay its staff bonus. This suggests more work is needed to deliver on its plans.
2. Online versus offline
One of John Lewis’ big bets is the positioning of online and its share of trade. This could prove a large gamble given the recent troubles of online retailers such as Asos and Amazon, with competitors such as Next and M&S citing a better-than-expected resurgence in store sales.
For many customers, their nearest John Lewis store may also now be a considerable distance away with the estate having been scaled back.
Click and collect is an area that John Lewis should certainly review to maximise the online opportunity. Its Waitrose network, an ongoing partnership with The Co-op, as well as the expansion of its Dobbies trial in late 2022 stand it in good stead.
Yet it can go further, and should look at its in-store proposition to complement its online ambitions. Fashion retailers such as H&M and Zara are investing heavily in store technology such as click-and-collect lockers, self-checkouts and smart mirrors to serve increasingly tech-savvy customers.
If John Lewis is to achieve its online ambitions, its stores must reflect the best in technology for its customers.
In 2021, it relaunched the John Lewis app, which it said accounted for 23% of online sales, up from 16% the year before. The app and ecosystems, such as the My John Lewis membership scheme, will be an area it will advance.
John Lewis said customers who shop via the app spend more than customers using other channels. It must stay on the front foot, particularly as competitor M&S also advances its omnichannel strategy.
Users of the John Lewis app can access augmented reality (AR) filters on a number of brands in the beauty category, which it first launched in 2019, enabling shoppers to virtually try on lipstick. John Lewis said: “This venture has proven extremely popular – with customers that use the tool more likely to purchase the product.”
It is now using AR in other areas of business across its iOS and android apps. For example, customers can see a model of a TV or sofa in their room to see how it looks with their furniture. It also used it for Christmas trees and has been experimenting with a wider range of electrical items.
Retailers who deploy technology such as AR into their online journey stand to better engage customers in their purchase decisions, winning loyalty. With 28% of John Lewis sales coming through the home category in 2021/22, it is an important area to invest in.
John Lewis also recently renewed its contract with Virtualstock for another five years to extend its range online via dropship and marketplace.
As marketplaces grow in popularity, John Lewis is likely to expand in this area to escape excess stockholding while offering its customers a wide variety of choices online.
3. All of life’s moments
John Lewis retired its Never Knowingly Undersold (NKU) price pledge in August 2022.
NKU had existed for nearly a century, but was deemed by the business to be out of step with the current climate, “no longer enough to assure trust because it applies to fewer and fewer sales as shopping moves increasingly online, and isn’t applicable to online-only retailers”. Instead, it would be investing £500m in a new everyday ’Quality & Value’ strategy
Retiring the pledge puts John Lewis in firm control of its pricing and promotions, which will have come under increasing pressure through NKU given the volatile trading conditions of the past few years.
In a bid to position itself as a retailer for all needs, the new strapline For All Life’s Moments launched in September 2022 and a new store format is set to launch this year.
The retailer said: “We have found this has really resonated with customers – especially at Christmas as we developed a really festive atmosphere in our shops, including our first ever Santa experiences, which were incredibly popular.
“We want to be there for all of life’s moments -–whether that’s a graduation, a dinner with friends or a once-in-a-lifetime event like the King’s coronation, we want to become the one-stop destination for customers looking to make every moment special.
“This year we will build on the launch of For All Life’s Moments – and we have lots more activity to come.”
Predicting activity to come, it should look to the success of its Anyday value range, which it launched in 2021, for more opportunity. Now is the time for bold moves, such as positioning its own label front and centre in its stores.
Its rental partnership with Hurr, which launched in 2022, is set to include upcoming launches in maternity, wedding dresses and guest outfits. At present, it features one own-label brand, Somerset.
John Lewis should expand to showcase its other own-label fashion brands such as And/Or, Anyday and Kin. In advocating its brands for rental, not only do they become more desirable, but it enables the retailer to reach a circular solution quicker.
4. Sustainability
John Lewis set the ambition to lead “the ‘made to last’ movement”. As part of a wider sustainability drive, the partnership pledged that all product categories will have a buy-back or take-back solution by 2025.
It will have to gather some pace to reach this target, with a current offer of BeautyCycle and FashionCycle – where customers return unwanted goods in exchange for a voucher – at present only open to My John Lewis members.
In October 2022, it launched its first sustainability conference – Journey to a Happier World. At an all-day event hosted in London, the retailer discussed a broad range of topics across six sessions, from tackling inequality, what fairness looks like and redefining fashion with a number of guests. Audience members included the public, schools and suppliers.
In her opening remarks, White declared: “Operating in an ethical manner is the right thing to do. It is also a ‘must do’ thing. Our customers and Partners expect it, especially given the heritage of the business.”
Yet as consumers grapple with the ongoing cost-of-living crisis, how can John Lewis entice its customers to make more sustainable choices while also delivering the retailer cash in the till?
Its partnership grocery counterpart Waitrose may well hold the first step. It started showcasing B-Corp products (a third-party standard requiring companies to meet sustainability standards) through its website back in 2019.
As consumers grow more conscious, John Lewis has to be more overt in its support of brands that support its environmental mission. Yet this may leave it with some tough choices, having to rethink its brand strategy to replace those that do not lend themselves to meeting its sustainability targets.
5. Beyond retail
At a wider partnership level, JLP is investing in four areas to develop its target for 40% of profits to come from outside retail by 2030: financial services, outdoor living, private rented housing and rental/resale/recycle.
It ended its tie-up with HSBC on the partnership card, choosing Newday for a new launch at the back end of last year. The change has not been without complaint – a recent Times article reported a number of customer complaints linked to the launch and service levels.
For a business that prides itself on customer service, John Lewis must be vigilant that any new service propositions come with the right level of support.
Its partnership card does, however, give the retailer ample customer data to utilise to its advantage.
Not content with financial services, JLP has an ambition to build 10,000 new homes in the next 10 years. It announced a £500m joint venture called “build to rent” with Abrdn in December 2022.
The retailer will partner with Abrdn to deliver its first 1,000 new homes across three local communities, choosing Bromley and West Ealing in Greater London and Reading for the initial schemes.
JLP said that subject to planning consent, it would expect residents in the first two proposals brought forward in Ealing and Bromley to start taking occupancy from 2027 with the projects due to be completed in 2028. Other locations are in the pipeline, which might see schemes come forward sooner.
While part of JLP’s strategy is to diversify away from retail, competitor M&S recently announced plans to spend nearly £500m on its store estate. Springboard data also shows footfall is starting to recover and customers are returning to stores.
In 2020, JLP stated its intent to spend more than £1bn over the next five years to accelerate its online business and transform its shops. One thing is very clear, despite its strategy to branch out from retail, investment in its stores is a must.
Of the progress of its new store format, it is currently trialling a number of concepts at its Horsham store based on feedback from customers to determine what it might look to introduce elsewhere. Fashion, personal styling studios and beauty brands are among the new range of services at Horsham.
The Retail Week analyst team estimates revenues at John Lewis to reach some £4.6bn by 2026/27.
No comments yet