How John Lewis won the festive retail battle

Despite the Christmas cheer that most retailers have celebrated, Marks & Spencer executive chairman Sir Stuart Rose last week cast a downbeat prediction for the sector as a whole.

He warned of a flat retail market this year and forecast that the only way for retailers to grow will be to steal market share from rivals.

His views have been echoed by other retailers that point to the impending general election, the national deficit, the possibility of increased taxes and higher unemployment, all affecting the consumer mindset, and therefore their willingness to spend.

Yet among the Christmas updates, which so far have been encouraging, there has been one outright winner - the John Lewis Partnership.

Both the eponymous department store chain and sister grocer Waitrose shone over the festive period. Even Rose was forced to admit his food business was “bested” by Waitrose. “I take my hat off to them,” he conceded. As store chiefs prepare for a tough 2010, they might do well to take a leaf from the John Lewis Partnership book.

Follow the leader

The John Lewis Partnership oozes the values of Middle England, but its appeal has grown during the recession. John Lewis and Waitrose are no longer just shops to get a toaster, or if you’re hosting a fancy dinner party.

The pair have turned themselves into more of an everyday shop, and their festive figures reflect just that. John Lewis delivered like-for-like sales up 12.7% in the five weeks to January 2 - even beating its high in the boom year of 2007 when Christmas like-for-likes were up 10.4% - and Waitrose reported like-for-like sales up 9% for the 13 weeks to December 26, trouncing M&S’s food like-for-likes, which were up 0.4% in the third quarter to December 26.

The John Lewis Partnership’s results show the potential is there to grab share. Retail Knowledge Bank senior partner Robert Clark agrees with Rose’s prediction, but argues that retailers can still seize opportunities.

“Some of the specialist retailers are performing well, but those retailers selling a bit of everything, such as M&S, have suffered,” he says. “Many of them are suffering from the Woolworths effect, in that shoppers don’t know what they stand for.

“Some people might have put the John Lewis Partnership into that category as it crosses several sectors, but it has worked hard to be relevant and it has paid off. Many people wrote Waitrose off as the one grocer that would suffer in the recession as it is upmarket. But what it has achieved can be replicated by other retailers if they are tactical.”

The John Lewis Partnership did not take its foot off the pedal when the recession started to bite - in fact it invested further. Similarly, Waitrose managing director Mark Price says the grocer chose not to compromise on service or quality despite the recession.

“It would have been easy to ‘de-spec’ the product and cut back on customer service but we made a conscious decision not to do that and have widened the gap on our competition,” he says.

The John Lewis Partnership’s growth has come from several areas, but its major drivers can be grouped under five main principles - product, new channels, brand values, price and new opportunities. All of which are applicable to other retailers as well.

“What the John Lewis [Partnership] has achieved can be replicated at other retailers even if there isn’t any growth in the sector,” says Verdict Research senior retail analyst Maureen Hinton. “Retailers need to be careful with costs and invest in the right areas, but if they don’t invest it takes a long time to win back those lost customers when we emerge from the recession.”

The product innovation over the past year has included the John Lewis Value range, investment in fashion, and Waitrose’s Essential and Duchy Originals ranges.

John Lewis director of selling operations Nat Wakely says John Lewis moved swiftly to introduce its Value range, which he says “was essential in the current climate”. The homewares range - covering everything from wine glasses to towels - was launched to take on the supermarkets’ non-food lines.

Waitrose similarly caught the mood of the nation with its value range, Essential, which was a runaway success. According to TNS, Waitrose recorded the highest growth in both market share and turnover since August 2005 in the 12 weeks ending December 27, 2009, driven in part by Essential Waitrose.

Price says: “We were planning to get an average 5% uplift on Essential Waitrose, which would have washed the face of our £40m investment, but our average for the year was 18% up. We’re also welcoming about 500,000 new customers a week.”

Importantly, both John Lewis and Waitrose have not lost sight of their top-end customers by launching value ranges. Higher-priced products are still centre stage at both retailers, and Waitrose has reinforced its commitment to top-end food with its partnership with the Prince of Wales’ food company Duchy Originals.

“We didn’t lower our quality with the launch of Essential, we lowered our entry prices,” says Price.

The product investment has given Waitrose a broad appeal, says Price. “We sell wine at £800 a bottle, but we also sell everyday items such as bread and baked beans at everyday prices. Waitrose is about being the best in food - whether that’s everyday or gourmet.”

Clark says Waitrose’s Essential range “hit the mark”. He observes: “Shoppers are now realising that they can get their basics from Waitrose and that is resonating with a wide range of consumers.”

John Lewis has also stepped up investment in fashion and over the festive period it reported fashion sales, including beauty, up 22%. It relaunched its online fashion offer with more than 100 new brands with a view to adding £70m to its online fashion sales by 2011. The retailer also created a luxury shopfit for womenswear at its Cardiff shop.

“Shoppers are buying fewer items so retailers have to invest in product to make sure they are the first port of call,” says Hinton. “John Lewis has traditionally been known for home and electricals but now clothing is much stronger. There are lots more fashion brands available and, importantly, its core customers know and like those new brands.”

Accessible across all channels

John Lewis’s relaunched online fashion also feeds into another of its core initiatives - seeking out new channels to market. Wakely says John Lewis’s drive to become fully multichannel is one of the key reasons for its recent success.

He says the department store business launched its version of click and collect 15 months ago, so it has just completed its first full year in operation. “The combination of website, shops and telephone was a real boost to us last year and over Christmas we showed growth in all channels,” says Wakely. “Being as accessible as possible for our customers is essential.”

Waitrose similarly worked on its accessibility. Outside of its partnership with online grocer Ocado, it has been ramping up its home delivery service Waitrose Deliver and was the first grocer to scrap food delivery charges.

Waitrose also struck partnerships with Shell and Boots. With the former it has opened shops in service stations, and with the latter it will cross-sell products in each other’s shops.

Clark says opportunities to push a brand should be grasped even quicker in a recession. “If it’s possible to forge partnerships with like-minded brands then that can often be a low cost way of getting your brand out there further,” he argues.

Alongside new channels, retailers should also seek new opportunities to grow in a recession. Both John Lewis and Waitrose are on the expansion trail and have had to think tactically to deliver space growth.

John Lewis was thrown off its 10-year expansion plan after the recession forced some developers to put schemes it was anchoring on hold. The lack of space for full-line department stores led the retailer to create a smaller format, called John Lewis at Home, just for homewares and electricals.

Wakely says the home format “came to fruition very quickly” and is another example of giving shoppers a consistent offer. “The more we can shorten the journey time for customers the better,” he says.

Expanding in a recession

Waitrose has also expanded its portfolio, adding new formats such as small market town stores and convenience shops. In searching for potential sites, Waitrose was the first retailer to scoop up stores left vacant from the collapse of Woolworths, and those up for grabs after Co-operative Group bought Somerfield.

Clark points to Tesco as an example of how expansion should remain top of the agenda even in a recession. “Tesco bought up lots of sites from 1995 in the last recession when Asda and Sainsbury’s both sat back, and they got caught out,” he recalls.

Price is another factor that should be at the front of all retailers’ minds to help maintain or add to market share in a recession. At the start of the credit crunch, the headlines would have led many to believe the nation was only shopping at pound shops and hard discount grocers such as Aldi and Lidl. Yet while many shoppers tried out these chains, the John Lewis Partnership’s continued success shows most haven’t abandoned other more upmarket shops.

Part of the John Lewis Partnership’s continued attraction is its investment in price. John Lewis’s strapline “Never Knowingly Undersold” is not a new initiative, but over the past year the retailer has shouted louder about its promise.

Wakely says that the retailer “turned up the volume on its pricing policy”. He explains: “Some of our customers didn’t really know enough about our pricing policy so we went out of our way to spread the message further.”

Similarly, Waitrose invested £50m in price last year. Price says Waitrose has “never been more competitive on price with Sainsbury’s”. He says last year on an average of 12,000 lines the grocer had a 3.5% difference in price with Sainsbury’s, while nine years ago that difference would have been 9%.

Hinton says that price investment is key in a recession, but what the John Lewis Partnership has done is “make sure customers know they stand for value”. She says: “It’s not about being the cheapest, it’s about being value for money, and that’s what all retailers can work on.”

Hinton adds that shoppers want a brand they can trust and the John Lewis Partnership’s ad campaigns have pushed the company’s values. The retailer’s Christmas ad campaign harked back to traditional family values, and prior to that it launched a book called Make Do and Mend, which offered traditional recession-busting tips.

“Make Do and Mend caught the vibe of the time when shoppers wanted tips on how to fix things themselves and it also tapped into our heritage as a haberdashery shop,” says Wakely.

Hinton says the ad campaign harked back to values that pre-date the consumer boom and made the retailer relevant to a broad spread of customers. “The toys that sold well at Christmas were traditional and the parents or grandparents who bought them felt like they were doing a good thing by buying them,” says Hinton.

Another brand value John Lewis and Waitrose did not forget in the recession is customer service. “The point of contact anywhere - in stores, online or on the telephone - is excellent and if anything, it has stepped it up in the recession,” says Hinton.

Wakely says that the trust in John Lewis is one of its key differentiating factors. “Shoppers started to think more about where they bought big items from when the credit crunch started,” he says. “They wondered if they bought from certain retailers, would they still be around in six months if anything went wrong with the product. With us, they know we have been around for a long time and are not going anywhere.”

While 2010 will undoubtedly be a tough year, the John Lewis Partnership’s success during the recession shows that opportunities are there for the best to sustain momentum.