The John Lewis Partnership has set out its worst-case scenario for its current financial year, but says the future of its business is strong despite the hit to short-term trading as a result of the Covid-19 pandemic. It will now look to adapt to the changing way that shoppers are buying as a result of the pandemic in its already-planned retail review.
The partnership said it was working on a worst-case scenario that John Lewis full-year sales could be down by 35%, while Waitrose sales could be down by less than 5%. The retail group expects that sales will fall significantly between April and June, and remain weak for the rest of the financial year, which runs until next January.
In a trading update and letter to staff, partnership chairman Sharon White today said that business had been significantly affected as all 50 John Lewis shops were now shut, and more than 14,000 staff are furloughed. Its online business is still operating, with online sales 84% up on last year since the middle of March. But this, said White, was not enough to offset the loss of store trade. Overall sales are down by 17% year-on-year (YOY) since the middle of March, and down by 7% in the current financial year.
At Waitrose demand is sharply up online and at its 338 shops, but operating costs have increased, as the retailer has expanded its online delivery by 50%.
White said that the partnership’s retail review will now be completed by the summer. “It will seek to take account of changes in consumer behaviour to come out of the pandemic, such as a more pronounced shift to online and a desire to shop in more sustainable ways,” she said.
She added: “The Partnership has been trading for nearly a century. It has survived a world war and bombings, economic crashes and crises. Thanks to you, we shall also come through COVID-19 too and emerge stronger.”
The executive team and board members will all take a 20% pay cut from April, initially for three months.
Waitrose sales have grown by 8% year-on-year since January 26, with turnover up both in-store and online. Storecupboard essentials such as rice, pasta and long-life milk have been in strong demand, and demand for home delivery has been “especially strong”. Capacity for online delivery has increased by 50%, which, says White, “puts us in good stead ahead of the ending of the Ocado contract in September”.
John Lewis online sales have risen by 84% year-on-year since the middle of March, with high demand for technology and food preparation products that help shoppers to work at home while also spending more time there, and products that help people keep fit and entertain children. “However,” said White, “these are some of our less profitable lines. We are buying more Scrabble but fewer sofas.”
Cost-cutting action already taken by the board includes reducing stock intake as John Lewis trading declines, reducing operating costs and cutting £100m off marketing spend. Capital and investment spending will also be reduced by more than £200m. The retailer has furloughed more than 14,000 staff and is negotiating with landlords to move from quarterly to monthly payments and other rent relief measures. It is also working with its bank to provide extra flexibility where required. Currently, the John Lewis Partnership has £900m in the bank and access to a further £500m of uncommitted lending. The government’s year-long business rates holiday will save John Lewis Partnership about £135m this year, while the ability to defer VAT payments will help short-term cash flow.
Social distancing is in place in its supermarkets, warehouses and distribution operations, while checkout screens have also been put in place and PPE is being bought.
The partnership has also previously outlined how it is supporting smaller food suppliers and overseas farmers as well as NHS workers and vulnerable customers.
Image courtesy of Waitrose