Explainer: Why Waitrose is no longer the jewel in the John Lewis crown and how the group’s future may lie in property, not produce
Times are tough for John Lewis as chair Sharon White admitted when the high street stalwart this week announced it had made a £234m loss in 2022.
The sum was worse than market expectations and marked the second year the upmarket retailer had gone into the red.
In a sympathetic letter addressed to the company’s staff, known as partners, White confessed the group had faced set-backs largely fuelled by what she called the “pain of inflation” which had hit the wallets of the middle class shoppers who flock to its Waitrose supermarkets or splash out on 400 thread duvet sets in its John Lewis department store chain.
“The results of John Lewis & Partners (JLP) are really bad news, worse than most people expected,” Professor Joshua Bamfield, director at Centre for Retail Research, told CityAM
He said: “The three per cent fall in sales at Waitrose has had a great impact. Not only have JLP’s sales fallen overall by two per cent, but the poor performance of Waitrose has led to the business marking down the Waitrose property value by £156m.”
Why inflation has hit John Lewis so hard
Susannah Streeter, head of money and markets at Hargreaves Lansdown said the cost-of-living crisis has been blowing a chill wind through the retail sector but has whipped up “a hurricane of problems” for John Lewis.
She said although the high street had shown pockets of resilience among retailers offering value-for-money essentials, the “nice-to-have items which are John Lewis’ bread and butter have been dropping out of shopping baskets fast”.
“Waitrose, in particular, has been sideswiped by the trend, with essentials rather than treats a priority, shoppers have been putting less in their trollies and decamping to cheaper stores. Although a big chunk of the losses were due to a write down in the value of Waitrose stores, if you strip out exceptional items, losses still came in at £78m, compared to a £181m profit last year.”
‘Management shake-ups have not helped’
For many, the ongoing struggle for the iconic British retail group has come as a shock, but the employee-owned business has been struggling for a while – with many left wondering what went wrong.
“John Lewis has been underperforming for some years now and regular shake-ups at management level have not helped,” Josh Holmes, senior consultant at Retail Economics, said.
In the last two weeks JLP has rejigged its senior management team, welcoming for the first time a chief executive and waving goodbye to the head of the department store chain Pippa Wicks who announced her departure after a three year stint at the helm.
Earlier this week White welcomed retail veteran Nish Kankiwala as the company’s chief as the retail boss scrambled to get another pair of hands on deck.
Holmes said bringing in a new chief executive was the latest admission that the turnaround plan “is not on track,” with significantly more work needed to put the “business back on top.”
He said: The company has tripled its target for cost savings, but this raises genuine concerns over the impact on innovation and investment in its customer proposition.”
‘No annual bonus’ for John Lewis partners
As a result of these setbacks chairman Sharon White told employees that she would be unable to offer a staff bonus, long-considered to be one of the perks of working for the upmarket retail group.
“Dame Sharon White – who remains as chair – also admitted that the number of staff will have to be reduced as part of the efficiency drive, following on from thousands of jobs which have already been cut,” Julie Palmer, partner at Begbies Traynor, said.
He added: “How this fits with John Lewis’s paternalistic model and will work in a business which prides itself on high standards of customer service is unknown. If she and Mr Kankiwala can’t deliver – and fast – they could join the number of partners who will soon be looking for new jobs.”
Residential property – problem or solution
And it’s not just its retail arm that has been suffering, John Lewis has also faced pushback over its first build-to-rent development after the leader of Ealing council accused the firm of “bullying” and raised concerns about the lack of affordable homes for locals in the area.
The group has ambitious plans to build 430 new homes above a Waitrose supermarket in the West-London burrow – however has been criticised for attempting to push back on the Labour council’s guidance to build a 13-storey building and push it up 19 storeys.
At the time, a John Lewis Partnership spokesperson told City A.M. that the group has given a “great deal” of thought to the design and the latest consultation, which will take place later this year, is another important step in “continuing our conversation with the council and local people in helping to shape our plans”.
What will happen to John Lewis?
Streeter pointed out that John Lewis has started reigning back on some of the costs that have impacted its profits.
She said: “Punishingly high energy bills to keep lights on in vast stores and refrigerators whirring at Waitrose will also have come at a high cost. With department store footfall dwindling as retail parks continue to draw shoppers away from high street,”
Streeter added that John Lewis was sensible to be shrinking store footprints to find more diverse revenue streams from a property portfolio, .
“It’ll mean it will become less of a retail lynchpin but offers a greater chance that John Lewis will stay a feature on the high street and in shopping centres for many more years to come.”
“But there is clearly a long way to go before efficiencies come through and the new property side of the business can start turning consistent revenues. The appointment of Nish Kankiwala as CEO is designed to inject more energy into the pursuit of profits. Sharon White, as chairman, is still the steady hand on the tiller guiding the chain through some turbulent retailer waters. But it’s clear there needs to be a razor-sharp focus on fresh lines of revenue.”