The John Lewis Partnership remains confident in the face of a 45.4% profit slip, and the company’s lowest annual bonus since 1953, thanks to its long-term strategy and investment, chairman Sir Charlie Mayfield said today.
“We anticipated that these would be difficult times, so we’ve been taking conscious steps over about four years to build up our financial position so that we’re ready to cope with any eventuality,” Mayfield said this morning at the announcement of the partnership’s results for the year to 26 January.
The 45.4% decrease in profits to £160m was largely a result of performance at department store arm John Lewis & Partners, for which managing director Paula Nickolds cited a challenging market and increased discounting across the sector.
She said: “Lower consumer confidence and discretionary spending power coupled with the distress in the sector that’s causing a lot of promotional activity has produced a really hostile combination. What we have been describing is a structural change to retail as an industry that we don’t think is going anywhere any time soon. We are doing what we have to to reshape our organisation to face into that new retail dynamic.”
Operating profit across the partnership was down 55.5% to £114.7m, driven by the same issues. Gross sales at the Partnership were up 1% for the year, to £11.7bn.
Gross sales at John Lewis & Partners were up 0.7% to £4.9bn for the year, but like-for-like sales decreased by 1.4%.
Nickolds confirmed that about a quarter of the total profit impact at John Lewis was related to promotional activity. However, she stressed that this wasn’t necessarily attributable to the “Never knowingly undersold” price promise.
“We’re taking the longer-term view and have been really restless in pursuing what make us different, and positioning the brand for what we believe will be the future of retail,” she said. “By which we mean a truly differentiated product, enhanced experience and the development of services that, as a brand, we are uniquely placed to deliver.”
John Lewis’s unique product offering, made up of own brand and exclusives, increased from 24% in 2017 to 34% in 2018, as a result of an overhaul of its womenswear and accessories department. This year, the change will be rolled out to menswear, beginning with the launch of six new independent brands last month.
Nickolds said: “We will relaunch our [menswear] own brand in September but, in the meantime, we are also introducing a significant number of new exclusive brands with a real focus on testing new and unique brands that have very limited exposure.”
A full rollout of personal styling services to all stores that run fashion will be completed in the first half of the year, following 20% uplift in sales via personal styling services on the previous year.
“These all reflect our belief that the future of retail will increasingly rely on services and experiences around products as much as the products themselves,” said Nickolds. “At a time when others are cutting back on partner and staffing numbers, we’re investing in frontline partners, and new roles and training designed to create better jobs.”
Mayfield and Nickolds assured that there were no planned store closures for John Lewis, despite the partnership selling five Waitrose stores to rival retailers, putting 440 jobs at risk.
After warnings in January that staff might not receive bonuses, the partnership announced a 3% payout – its lowest annual bonus since 1953.
Despite a poor profit performance, group finance director Patrick Lewis maintained that the partnership’s strong cash position leaves it “absolutely as ready as [it] can be” for any Brexit eventuality.
Lewis said: “We’ve got a record level of liquidity, £1.5bn, which is double what we had five years ago. It means in April we will pay a bond of £275m from cash and on top of that we also have wider reserves for the volatility of trading we might need to expect throughout the year.”
Mayfield added: “A chaotic [Brexit] ‘no deal’ is a very bad outcome and should be avoided. We all feel like bystanders watching this, and what we have to do is plan for the worst. We have built up a financial position that is resilient against pretty much any scenario.
“If people aren’t buying things you could have a scenario where there is a serious step-down in sales, and we have to be prepared for that. You plant the seeds for the next harvest in the winter and we’re sowing early and cultivating.”