The bosses at John Lewis insist their transformation plan is working and partners are in line for a bonus again, but just how bright is the future for JLP?
There was an upbeat mood within the John Lewis Partnership today when its famous bonus was restored and tentative green shoots of recovery sprouted.
Partners at the retail group, owner of upmarket grocer Waitrose and the eponymous John Lewis department store chain, were awarded a 3% bonus – amounting to a week and a half’s pay. The award was restored having been scrapped last year for the first time since the 1950s.
The payouts came as the business bounced back, posting a profit before the bonus, tax and exceptional items of £181m in the 12 months to January 29, up 38% on the prior year.
Reversing the trend of recent years, the department store division emerged as the star of the show.
John Lewis reported a 37% rise in trading operating profit to £758m as margins “markedly improved”, driven by higher revenues, reduced markdowns and a sales mix reflecting higher fashion and home sales, rather than technology.
John Lewis achieved record sales, up 8% in like-for-like terms to £4.93bn.
Waitrose, contending like other grocers with inflationary pressures in its supply chain and the shift to online, suffered an 11% fall in trading operating profit to £1.02bn despite a 1% uptick in like-for-likes to £7.53bn.
The group’s performance reflected a range of improvement initiatives, which helped John Lewis in particular as it adjusted to the changed conditions in which department stores now operate.
John Lewis launched its Anyday range, pitched on value and quality, which generated sales of £120m, kicked off a drive to improve the layout and visual merchandising of stores, and will invest £119m this year in distribution, digital services and its shops – no more closures are planned.
John Lewis increased market share in categories such as home and nursery. Enhancements to the MyJL loyalty scheme, such as greater personalisation, are in the pipeline, as well as a continued diversification push as the partnership seeks to generate more profits from areas including financial services and home rental schemes.
At Waitrose, the rapid delivery offer is being bolstered with the addition of 10-minute service Deliveroo Hop, £55m is being invested in store refurbishments this year and another £72m will be ploughed into improving its digital services and distribution.
Across the group, online has become increasingly important. It accounted for 17% of sales at Waitrose versus 5% two years ago. At John Lewis, the proportion of revenues raked in from ecommerce hit 67% versus 42% in 2019/20.
So, aside from some challenges at Waitrose – not unique to it in a challenging grocery market – progress has been made at the partnership.
As it prepares for the next phase of turnaround, is the future so bright that chair Dame Sharon White should wear shades?
Not quite. The group made a loss before tax of £26m – although that was a £491m improvement on the previous year – and cost savings of £170m were, as the partnership admitted, “a major factor behind profit growth”.
Like the rest of the industry, John Lewis also faces a very challenging future. No sooner is the pandemic beginning to recede than inflation is running rampant, creating a cost-of-living crisis for consumers, and the horror of a European war following Russia’s invasion of Ukraine has sent shockwaves around the world.
White was confident, however, that last year’s improved performance was evidence that the turnaround strategy was bearing fruit, rather than being indicative of any one-off benefits or the simple unwinding of Covid effects.
“What’s the new normal? I think we should stop asking the question because we’re living the new normal”
Dame Sharon White, John Lewis Partnership
White told Retail Week: “This very much reflects the fact that the turnaround, the transformation plan, is on track. It is a combination of very strong trade, but also some very difficult but very necessary cost savings – £181m of profit plays £170m of cost savings, so that gives you a very good indication that those are structural, systemic changes that we have made.”
She believes that constant change is now a given and businesses must adapt: “What’s the new normal? I think we should stop asking the question because we’re living the new normal.”
To that end, blended working habits and the convenience of services such as Deliveroo have “started to be baked into our norms and behaviours”, White insists.
While online penetration has dipped since the heights of the pandemic, it is still “appreciably higher” than pre-Covid levels.
John Lewis executive director Pippa Wicks also maintains the turnaround plan is working. She said: “Every single market leadership position that we’ve talked about moved forward because of the very careful and deliberate plans that our Partners put together to deliver a mix of products and services across those areas – very much driven by Partners, as opposed to one-off benefits and whatever else was going on in the world, and that will continue.”
John Lewis, Wicks believes, is well placed to ride out any storms that may come. She observed: “We’ve seen in past times of cost-of-living challenge that trusted brands are where people retreat to, therefore our quality and value proposition is very important.”
At Waitrose, executive director James Bailey recognises there are tough times ahead, but he is also confident of navigating them.
He said: “I’ve seen data in the last week or so that says customer confidence, for every type of customer, has collapsed in the last couple of months. That’s not really all that surprising given all the news about the cost of living, energy costs and other serious events, so it’s inescapable that customer behaviour is going to change. It’s going to be really difficult to unwrap the dynamics.
“How does Waitrose respond in that situation? We’ll continue to deliver fantastic service, quality and ethics; we’ll continue to deliver our plan, which is to continuously improve for our customers.
“We’ve got lots of opportunities to do that, and in the midst of that inflation challenge to our customers we need to meet them on their terms and be able to guide them through their grocery basket in a way that will help them save money in the way that they want to, whether that’s personalised offers, improving and increasing their awareness of our Essentials range, giving them great promotions at the right times and affordable treats when they’re looking to enjoy themselves.”
“We will be doubling down in terms of running the business even more efficiently. Lean, simple, fast, being even more productive – that will continue to be a theme”
Dame Sharon White, John Lewis Partnership
White pointed out that the business is only in year two of its five-year transformation plan, so there remains much to do before her strategy is fully enacted. The same principles that have guided it so far will remain.
She said: “We will be doubling down in terms of running the business even more efficiently. Lean, simple, fast, being even more productive – running the business well but doing it at lower costs, that will continue to be a theme.”
Despite the headline figures and the return of the bonus, retail analyst Nick Bubb believes White and co benefited from a number of tailwinds that worked in the partnership’s favour during the financial year.
“A 3% bonus should have been a shoo-in after the first-half profit recovery, but it was a closer-run thing than it ought to have been in the end because of the surge in second-half central costs and second-half margin pressure at Waitrose,” he says.
“I don’t think the structural pressures have gone away, with only 33% of sales coming from the stores, as evidenced by the further property asset write-off”
Nick Bubb, retail analyst
“John Lewis itself performed better than I expected in the second half, despite the slump in electricals, with 2% to 3% like-for-like overall sales growth and improved gross margins. But it had quite a few tailwinds, with the demise of Debenhams, the continuing strength in the homewares market and the recovery in fashion.
“I don’t think the structural pressures have gone away, with only 33% of sales coming from the stores, as evidenced by the further property asset write-off.”
There may be plenty of hard yards still to travel but the restoration of the bonus will have served as a tonic for the troops, bolstering morale for the next stage of the journey and encouraging partners to give their all for a successful turnaround.
That may, in itself, prove invaluable if the partnership is to build the further momentum it needs in such unstable and uncertain times.
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