Partners at John Lewis will receive their lowest annual bonus since 1953 — 2 per cent of salary — as new chair Sharon White embarks on an overhaul likely to result in store closures and the end of the “never knowingly undersold” price pledge.
As the group revealed that profits at its department stores fell by £75m to just £40m in the year to January, it warned it could take three to five years to turn round the business.
Dame Sharon acknowledged that profits from the John Lewis stores were “at the bottom end of the range” expected internally. Just two years ago, the department stores made more than £250m in operating profit.
Patrick Lewis, finance director, said the key drivers of the profit reduction at the John Lewis stores were “lower sales in home and electricals [and] higher IT costs”.
The Waitrose business performed better but overall John Lewis’s group underlying profit was £123m, down 23 per cent from £160m.
The results underline the scale of the challenge facing Dame Sharon, a highly regarded economist with no retail experience who was a surprise choice as the new partnership chair last June.
She said the staff bonus, which was down from 3 per cent last time, was “prudent, affordable and recognises the hard work of partners”, but stressed that “we have to arrest our profit decline”.
Dame Sharon has launched a review that will “focus on how we strengthen our core retail business and develop new services outside retail” and “look at ‘right sizing’ our store estate across both brands”.
The business will remain owned by its employees and will retain the John Lewis and Waitrose brands but there will be changes across its portfolio.
One high-profile casualty could be the retailer’s “never knowingly undersold” price pledge that predates even the foundation of the partnership. “The review will look at how we keep to a really strong quality and value proposition” but that might be “in a more modernised form”, said Dame Sharon.
Richard Lim, chief executive of Retail Economics, said the promise was “not fit for purpose in today’s retail world”.
“Department stores are under huge pressure, they are dealing with a different set of competitors now. And John Lewis is operating with a model that is different to the people it’s competing against,” he said.
At Waitrose, the partnership’s upmarket grocery chain, operating profit was £213m, up £10m from last year, although three more supermarkets will close this year. The group said there would be a significant investment in the business ahead of the end of its supply agreement with Ocado in September.
Online sales at Waitrose increased 13 per cent and are running 17 per cent higher so far this year.
Mr Lewis said the spread of the coronavirus was affecting recent trading at Waitrose supermarkets. “We’ve seen increased demand this week in grocery and food, and also an increase in online demand as a proportion of trade,” he said. Hand sanitisers, soap and tissues were in particularly high demand.
“We’re working very hard with our suppliers on an hourly basis. One of key things for us is that we have long-term relationships with many suppliers and in these kinds of situations that makes us very agile,” he said.
Dame Sharon did not reveal the possible location of future store closures, although there were hints that more Waitrose and John Lewis stores could trade from the same sites in future. The value of the John Lewis store estate was impaired by £110m.
In October, her predecessor Charlie Mayfield unveiled a restructuring designed to take £100m of costs out of the business and unify the management of Waitrose and John Lewis. Previously, they had been run as separate business units under divisional managing directors, both of whom have now left the business.
Sir Charlie said repeatedly that Dame Sharon had been supportive of the changes, which have left many in the industry bemused, but she has left the door open to adjustments. “As you would expect from any incoming chair, I will be looking at the detail of the structure to make sure that it works for customers,” she said.
Her review will be presented in September.
“Our constitution requires us to make sufficient profit to keep the partnership going, not the highest amount possible, and to put our customers and our partners ahead of profit,” Dame Sharon wrote in a letter to partners that accompanied the results.
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