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John Lewis defends proposed staff bonus cut

John Lewis Partnership chairman Sir Charlie Mayfield has defended plans to cut staff bonuses for the fourth year in a row, despite expectations that profits will rise.

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John Lewis bonus

John Lewis staff received a 10% bonus last year

Last year, staff received a bonus of 10% of their annual salary. But in its Christmas trading update on Thursday, the business warned that this year’s bonus was likely to be “significantly lower”.  

Speaking after the results were released, Mayfield explained that a 4.9% boost in sales over Christmas was not an indication that the year ahead would be easy, and argued that it was vital to invest more profits back into the business to help it weather the storm.

“One of the reasons we commented on [the bonus] is because our Christmas performance and profit outlook are, unusually, not a good guide as to where the bonus will be,” he said. 

“This business is about the longer term and our responsibility is to strike the right balance. This year, the right thing is to retain more profit to have the firepower to invest in and future-proof the business.”

Mayfield pointed out that, in particular, the weakness of sterling would have an impact on the partnership’s bottom line over the coming months. Not for the first time, he argued that UK retailers would absorb most of the costs resulting from fluctuating exchange rates because it’s “an intensely competitive marketplace”.

He added: “Even if it’s passed on to customers, that’s not necessarily good, as it will dampen demand, particularly if we see a swing of inflation versus wage growth.”

He said the partnership needed to invest in “accelerating its strategy”, although he gave little further detail, suggesting only that it would include more investment in developing its own brands, improving its service and “of course” staff productivity.

He said investments in own-brand fashion, such as relatively new premium label Modern Rarity, have “really delivered” and this will be an area of focus in 2017.

John Lewis is planning for a future in which its stores and staff take on different roles, said Mayfield: “We’re looking carefully at where we spend our capital. Over the past year we’ve been investing more in existing shops rather than new ones, and we expect that trend to continue – as well as investing online.”

Mayfield admitted the continued pace of online growth has come as something of a surprise. About 40% of John Lewis’s sales now come from ecommerce, up from 36% last year.

“We sometimes wonder if there will be a slight slowing of growth online but there hasn’t been. It’s continuing on pretty much same trajectory,” said Mayfield.

He said there were “a number of plans” to adapt the business accordingly, which would be discussed with staff in due course.

Mayfield repeated his previous assertion that the number of staff John Lewis Partnership employs would reduce over time: “It is something that’s been happening for some time now,” he explained. “When you look at sales per partner, we’ve seen a steady and sustained improvement. We’ll see that continuing.”

 

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