Oracle Retail Week Awards: How John Lewis led the way and outperformed its rivals

Over the past few years, John Lewis has really come into its own. Everything from its branding to its financial figures have fallen into place and, as the UK enters a sixth year of economic uncertainty and some big retail names fall, the department store business has never looked more confident.

The recession might have caused parts of the retail industry to falter, but John Lewis has managed to find a sure path. The retailer has simultaneously led the way in some crucial areas at the same time as managing to buck the trends that others have become mired in.

“Everyone’s saying ‘abandon the high street’ but we are trading extremely well,” says managing director Andy Street. “We’re defying the market, and we have big plans for further expansion.”

The full-year figures, released last week, showed that gross sales were up 13.5% in the year to January 26, with like-for-like sales up 10.5%. Sales have now reached £448.3m and the retailer’s operating profit is now £216.7m - up a huge 37.2% on the previous year.

According to Verdict, the value of UK retail sales grew just 0.8% overall in 2012, so the performance is quite an achievement. Given its consistent outperformance of the market, can John Lewis really be referred to as a bellwether any more?

Street concedes that the retailer’s performance is no longer a clear measure of how the wider retail market is performing. “We are outperforming the market and our performance has been substantially better. But is John Lewis a fair representation of what Middle Britain is thinking and doing? Yes it is.”

Part of the business’ success is down to its unique positioning. Shoppers who have spent the past few years being buffeted by rough economic winds have found solace in John Lewis’ reassuringly ‘Middle England’ image.

The department store group’s resolutely British, almost comforting presence on the high street has never been more attractive to the recession-weary UK consumer, and the image it has developed over the past few years has clicked with the mood of the times.

But putting John Lewis’ success all down to circumstance does not recognise the skill with which the retailer has operated. The retailer hasn’t just pitched the tone of its marketing correctly, chosen the right products or worked on its reputation for service - although these have all helped. It has also become one of a handful of retailers leading the multichannel evolution in the UK, driving through cultural changes and investing in its IT.

John Lewis began its multichannel journey five years ago, when it first started to think about how best to deal with chilly economic times.

“It was 2008 and a reaction to the recession,” says Street. “It made us think ‘Right, we’ve got to become a multichannel retailer’.”

The change required a fundamental cultural shift, and Street says that came directly from the board. “We now have a greater willingness to take risks and a greater understanding of the spirit of innovation,” he says. “We’re doing things that perhaps you wouldn’t have thought John Lewis would be doing. And all of this is being driven by the board.”

The ambition, he explains, is to become Britain’s leading multichannel retailer, and the work is still ongoing. It began with bringing the online team, which had existed since 2001, into the main body of the business, and has continued since then.

One early initiative was to make stores responsible for online sales in their catchment area, and throughout the last five years the aim has been to communicate how important these changes are to staff.

At the beginning of last year, a strategy roadshow was staged, which involved talking to every person in the business about what was happening and why.

Street admits that such a level of engagement, reflecting John Lewis’ business share, can often be one of the hardest parts of running the business, and that getting colleagues fully on board can sometimes be challenging. But he goes on to say that the effort of convincing all of the staff is worth it, because once everybody is fully on board more can be achieved.

“The challenge is that we’ve really got to persuade our partners that what we are doing is the right thing. That is quite a high hurdle for us. However, once you’ve done that and everyone has bought into your strategy, it’s incredibly powerful.” Early moves to adapt to a cross-channel environment was an inspired step, and it’s tempting to think that it was easy in hindsight. But many retailers weren’t moving in that direction five years ago, so did it feel risky?

“It was a risk, but it didn’t feel like one,” Street says. “We were so certain that it was the right thing to do.

We’ve pursued this strategy pretty ruthlessly and were absolutely determined.”

Such focus has produced some unexpected initiatives, not least the click-and-collect partnership with sister retailer Waitrose. The service has proven popular with customers and click-and-collect now accounts for 27% of John Lewis’ online orders, growing 103% year on year. Street says there are plans to develop the partnership further, including rolling out a Waitrose food offer to other stores.

There are food halls at the John Lewis store in Bluewater shopping centre and at the Oxford Street store, and the retailer wants to introduce a smaller version to other stores, beginning with a trial in Watford.

While the multichannel offer develops, so too does John Lewis’ reputation for service. The retailer is making efforts to duplicate the good service and advice offered in store online with a range of projects, and Street says that this emphasis has been maintained by constant monitoring and investment in staff.

“We have invested in front-line staff,” he says. “It’s very tempting to reduce your numbers in the downturn, but we had more people in 2012 than in 2011.”

That has been paid for by reducing staff costs in other parts of the business. “We’ve been able to do this and retain profitability because we were really robust in making our supporting operations more efficient.”

The Branch of the Future programme began in 2009 and has involved making redundancies among some supporting roles. Most recently, it meant 325 department manager roles were made redundant as the retailer seeks to rebalance in a bid to better support online growth.

Everything seems to be going right for John Lewis, but no one can innovate or take risks without sometimes getting it wrong. Street says that there are some areas where the business has learned from its mistakes.

The department store’s marketing, for instance, has changed a lot over the past few years. John Lewis’ high-profile Christmas ads might generate reams of positive headlines now, but it has been on a journey and has taken a while to get to where it is today.

“We do have an outstanding record, but you can’t claim that every ad we have ever done has been perfect.

When we started, we had some things that weren’t quite right, but you learn.”

A similar learning process was necessary with the At Home store format, but Street says that is just part of business life. “It’s not worrying if it doesn’t work first time. It’s about learning. That has been important - we haven’t been put off. We keep refining and we make it work.” The lessons learned from the At Home format made it possible for a smaller department store format, which was launched in Exeter last year, to be introduced.

“All of that learning enabled us to open the new store,” Street says. “We wouldn’t have been able to do that without what happened with the At Home journey.”

The other area of development for John Lewis is international trading. Its partnership with the South Korean department store business Shinsegae, which began in March 2012, is now well established. Its first sourcing office in India, located in Delhi, was also opened in 2011, and Street says that he wouldn’t rule out deals similar to the South Korea partnership in other locations, saying: “We are going to have the John Lewis brand applied to lots more locations around the world. I’m not saying they all work perfectly initially. But what we seem to be able to do is take our time and learn and improve.”

In terms of what’s coming next for John Lewis, fulfilment is high on the agenda: as for many other retailers, delivery is a core priority in 2013. Street describes it as the “unsung part of the multichannel story”. He says: “The website is critical, but actually it’s not the company’s competitive advantage - that’s the fulfilment piece.”

Enabling shoppers to purchase how and when they want is not easy, and the retailer is investing in a new distribution centre to add to its current state-of-the-art facility in Milton Keynes.

The new centre will stand the business in good stead for the next 10 years, Street says. This year will bring further infrastructure investment across the business, with £205m being spent in total. Street says: “We’re refreshing existing shops, opening new premises and investing in infrastructure and IT. In this omnichannel world that’s more important than ever.”

The aim is to keep extending the retailer’s coverage of the UK while maintaining its service reputation. Street says that personalisation will be the next big trend in retail, with targeted marketing offers and customer data driving the next step change for the industry.

As the years march on, however, John Lewis won’t be messing with a formula that works. “The same things that are important to us now will be important to us in the future,” Street says. If the business remains as adept at adapting as it has proven itself to be, the next 10 years will only bring more success.