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John Lewis Partnership has cut its staff bonus by 40 per cent in order to steel itself for a tough 2017 as it warned that the weaker pound and shift to online shopping would take their toll on the retailer.

The operator of John Lewis department stores and Waitrose supermarkets said it was cutting the bonus from 10 to 6 per cent of salary.

Sir Charlie Mayfield, chairman, said that the bonus would be lower “because the Board has decided to retain more of our annual profits in order to strengthen our balance sheet. This allows us to maintain our level of investment in the face of what we expect to be an increasingly uncertain market this year, while absorbing the costs associated with adapting the Partnership for the future.”

The company is confronted with rising costs because of sterling’s depreciation, tough competition and the shift to online shopping.

However, it said it had delivered above inflation pay rises of 5 per cent.

Although the company said pre-tax profits rose 65 per cent, it said this was because of lower pension accounting charges.

Gross sales in the year to January 28 rose 3.2 per cent to £11.4bn, and like for like sales were up 2.8 per cent to £10bn.

The company said that after exceptional items, profits had fallen for both Waitrose and John Lewis, with operating profit before partnership bonuses down 11.3 per cent to £206.2m at Waitrose and down 7.5 per cent to £231.4m at John Lewis in 2016 compared to the previous year.

The company said:

In the year ahead, trading pressures will continue as a result of the wider changes taking place in retail. The two major influences are pricing, where the rate of change in selling prices is likely to be significantly slower than the rate of change in input costs as a result of weakness in the Sterling exchange rate, and the continued shift from shops to online. These factors are significant for the outlook where we expect both inflationary cost pressures and competition to intensify in the market as a whole.

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