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John Lewis & Partners sees 23% slump in profits as strategic review kicks off

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John Lewis & Partners, an Elite retailer in the RXUK Top500,  has seen profits fall for the third successive year, dropping a whopping 23% on 2018/19 to £123 million in 2019/20.

While Waitrose put in a sterling performance – with operating profits before exceptionals growing by £10 million to £213 million – the partnership has only been able to pay put a 2% bonus to its partners – about a week’s wages – the lowest for 67 years.

The retailer was quick to point out its strengths in a statement on the figures, outlining how Waitrose is Which? magazine’s Supermarket of the year and how the John Lewis & Partners brand is rated top on the high street in a YouGov poll.

However, reading between the lines of its statement, the retailer is being hit hard by declining use of its High Street shops – even for showrooming – as well as its poor online shopping experience.

In a letter to partners, Chairman Sharon White said: “There are areas of the business where we know we need to serve customers better. In John Lewis we will be refreshing our home offering, introducing more inspirational and contemporary ranges with improved pricing and delivery. We will also be making improvements to John Lewis online to make it easier to shop.”

White continues: “All of us are aware of the challenges in retail. New technology means that shoppers have never had so much choice, value and convenience. That is to be celebrated. And there is great opportunity for retailers who have an intimate understanding of their customers to respond to them in an agile fashion. Every Partner can make a difference this year by focusing relentlessly on service – wherever they are in the business. If we get it right, customers will return to shop with us and we’ll earn their lifelong loyalty. 

As part of this, White has unveiled a strategic review of the business, which will see the company “focus on how we strengthen our core retail business and develop new services outside retail,” says White.

“As part of this, we will also look at ‘right sizing’ our store estate across both brands, through a combination of new formats and new locations; repurposing and space reductions of existing stores; and closures, where necessary.”

The review has already earmarked unprofitable Waitrose stores in Helensburgh, Four Oaks and Waterlooville for closure, however White has pledged that “every Partner who wishes to stay in the Partnership will be actively supported to do so”.

However, the company will be investing significantly in, ahead of its partnership with Ocado ending in September. Sales growth through was 13% up in 2019/20 and the partnership is recruiting 2,400 new Partners and building a new fulfilment centre in Enfield to meet increased demand for Waitrose products online.

Commenting on the news, Paul Kirkland, Director of Retail and Hospitality, Fujitsu UK says: John Lewis’ poor financial results signal a change in consumer behaviour that no retailer is immune to. Global macroeconomic conditions have undoubtedly played their part in reducing consumer confidence, making the coming year crucial for stores in creating a sustainable high street environment. The customer proposition and offerings really need some focus and attention to drive the right footfall and behaviours in-store, not to mention the difficulty in maintaining staff motivation and customer experience levels at a time when bonuses are being cut.

He continues: “Retailers can still engage their customers by creating a compelling in-store experience that drives them through the door. Many shoppers now view the high street as a social hub, not just a place to purchase goods. Therefore, some stores have seen success in creating a good social experience by introducing cafes and restaurants in their stores, providing different offerings to the customer. And as consumers increasingly head to high street stores without the intention to buy products, immersive experiences could be the key to helping shoppers buy-in to the brand and to create customer loyalty that will drive future sales.”

Lars Rabe, Managing Director True Fit Europe, adds: “John Lewis & Partners has two key differentiators; delivering great in-store experiences and their ‘never knowingly undersold’ price promise. The challenge for the company is whether this dual focus can be profitable under difficult trading conditions. The skilled sales people John Lewis needs to deliver superior experiences are expensive, while the retailer’s price promise is eating into margins. Add to this the impact of returns, which costs UK retail £20bn annually, and John Lewis is clearly being squeezed – as their new results show. As more shoppers go online, John Lewis needs to offer its customers the same level of service online as in-store, using data-based technology to help its customers choose clothing products they will keep and enjoy, reducing returns and bolstering profit margins.”

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