Transforming Britain’s John Lewis could take five years, new boss warns

By James Davey

LONDON (Reuters) – The new chairman of British retailer John Lewis warned on Thursday it could take up to five years to revive the employee-owned group hit by sliding profits, and that she would have to shut more shops.

Sharon White, former head of UK telecoms and media regulator Ofcom who succeeded Charlie Mayfield last month, launched a strategic review as the department stores and supermarkets group reported a 23% drop in annual profit, a third straight fall.

The group also said it would pay its 80,000 workers, which it calls partners, a bonus of just 2% of salary – the lowest since 1953 when it did not pay one.

“We need to reverse our profit decline and return to growth,” said White.

“This will require a transformation in how we operate as a partnership and could take three to five years to show results.”

The John Lewis Partnership runs the eponymous department store chain and upmarket supermarket Waitrose.

Many British retailers are going out of business or closing stores in the face of subdued consumer spending and a shift to online shopping. Department stores have been particularly badly hit – BHS went bust in 2016; House of Fraser was bought out of administration in 2018 by Mike Ashley’s Sports Direct <FRAS.L>; Debenhams went into administration last year and is now owned by its lenders; and Beales collapsed in January.

White’s review will focus on how the group can strengthen its businesses and develop new services outside retail.

It will look at “right sizing” its store estate – currently 50 John Lewis stores and 338 Waitrose branches – through a combination of new formats and new locations; repurposing and space reductions of existing stores; and closures.

Three Waitrose stores have already been slated for closure this year, it said – at Helensburgh in Scotland, Four Oaks in central England and Waterlooville in southern England.

Investment this year would focus on Waitrose.com, ahead of the ending of the group’s relationship with online grocer Ocado <OCDO.L> in September, John Lewis online and the home offering to make it more contemporary. There will also be a greater emphasis on sustainability.

‘NOT UP FOR DEBATE’

“What is not up for debate however is our employee-ownership model or the sale of either of our two brands,” White told reporters.

She added, however, that the department stores chain’s Never Knowingly Undersold pledge could be “modernised”.

She plans to provide an update on the review when John Lewis publishes first half results in September.

The group reported a pretax profit before one off items and partnership bonus of 123 million pounds ($159 million) in the year to Jan. 25, 2020, down from 160 million pounds in 2018-19. Gross sales fell 1.5% to 11.5 billion pounds.

While core operating profit at Waitrose grew by 10 million pounds to 213 million, it slumped by 75 million to 40 million at the John Lewis chain, reflecting weak sales in home and electricals, investment in technology and higher staff costs.

Finance chief Patrick Lewis said the partnership was planning for the market to remain volatile but had made a solid start to the new financial year with sales growth in both John Lewis and Waitrose and margins steady.

He attributed an increase in food demand at Waitrose stores this week to the coronavirus outbreak and said there had been an increase in online demand as a proportion of trade across the group – a sign consumers are trying to limit social contact.

He said products most in demand were hand sanitizers, soap and tissues.

(Reporting by James Davey; editing by Susan Fenton and Mark Potter)

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