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73% online growth fails to stop John Lewis ditching bonus, as profits crash; Co-op sees brighter future

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John Lewis: profits slump in store
John Lewis: profits slump in store
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John Lewis and Co-op – both owned by staff and members – show mixed results for H12020, but online props them up

It’s a tale of two co-operative retailers: staff-owned John Lewis has been forced to ditch its partner bonus for the first time since 1953, while member-owned Co-op reports better than expected results, thanks to food sales.

 

John Lewis posted a £635 million half year loss and has been forced to axe its staff bonus – the first time since 1953 when it resumed after a post-war hiatus. The loss was mitigated by a 73% rise in online sales, however.

 

The retailer saw a 10% drop in store sales in the six months to July. Its sister business Waitrose did however see sales up 10%. Yesterday the retailer announced plans to shrink the floorspace of its flagship Oxford Street store in London by 40%. It has also recently shed 1300 jobs and has closed 50 stores.

 

Online now accounts for more than 60% of sales, from 40% before the pandemic. As a result of this pronounced shift to digital John Lewis has had to reassess how much shops contribute to whether our customers buy online with us or not.

 

Dame Sharon White, chair of JLP, said: “The pandemic has brought forward changes in consumer shopping habits which might have taken five years into five months. Both brands entered the crisis with strong and established online businesses and in the case of Waitrose, plans for expansion well underway in preparation for the end of the relationship with Ocado. Our digital businesses, powered by Partners, have been key to underpinning our first half performance.”

 

She added: “Before the crisis we believed that shops contributed around £6 of every £10 spent online. We now think that figure is, on average, around £3. This has the effect of reducing the book value of John Lewis shops by about £470 million, known as an ‘impairment’. This is a technical adjustment in our accounts and has no impact on our underlying profits or cash in the bank. There is some judgement here. If shops drove 10% more online sales in future, the impairment would be around £400 million; 10% less and it would be around £570 million.”

 

Partners had already been warned in April that they were unlikely to see a bonus in 2021 and Dame Sharon said the board had now confirmed "that there will not be a bonus next year given our profit outlook".

 

She continued: “The decision in no way detracts from the commitment and dedication that you have shown. The partnership found itself in a similar position in 1948 when the bonus was halted following the Second World War. We came through then to be even stronger than before and we will do so again."

 

Dame Sharon said that "outside of exceptional circumstances" JLP would expect to start paying a bonus again once profits exceed £150 million and debt falls.”

 

Co-op on the up

The Co-op, meanwhile, saw sales surge by more than 7% to £5.8 billion for the 26 weeks to July 4, driven by exceptional food sales.

 

Food revenues for the group increased by 5.2% to £3.9 billion for the period, with 9.9% like-for-like growth in the second quarter, after customers shopped closer to home and ate out less frequently during the lockdown.

 

Its online offering continues to grow, with 500 stores now delivering food to customers. Its online same-day delivery service is now available across almost 100 towns and cities. The rollout includes services from Co-op’s own dedicated online shop – shop. coop.co.uk – which uses low emissions transport including eco-friendly bikes. It also includes a Deliveroo service that now covers more than 1,000 store catchments.

 

Co-op also teamed up with Buymie, a mobile app, to offer same-day home grocery deliveries to some 200,000 households across Bristol. The move is the first partnership in the UK for Ireland-based Buymie whose mobile app allows customers to book personalised online home grocery deliveries.

 

However, the Co-op warned that it expects competition in the grocery sector to now “intensify”, but is “well-positioned” to compete.

 

It has resumed its store opening programme and made a commitment to invest £130 million in opening 50 stores, extending 15 stores and giving 100 further sites makeovers, creating 1,000 jobs before the end of the year.

 

Steve Murrells, chief executive of the Co-op, said: “We are living in unprecedented times, but the response of our Co-op has been exceptional and I’m immensely proud of my 60,000 colleagues who’ve helped to feed and care for the nation during this difficult period. The coming months and years remain uncertain, and we know our own Co-op will not be immune to the pressures the recession brings to family budgets and to local and national economies. We will continue to invest within our core businesses to ensure that our Co-op value resonates within Co-op households and local communities.”

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