iIt turns out that the cure for John Lewis Partnership’s post-Covid woes of a few years ago was not in seeking outside capital or building 10,000 buy-to-let flats. Rather, the old-fashioned solution was to cut costs and focus on core marketing.
As it happens, the wild idea of finding outside investors fizzled out when it was aired loosely, causing an uproar among customers and staff about the threat to such a 100% employee-owned model. But the home building adventure continued until it was dug out a few weeks ago by new chair Jason Terry. He conceded, in fact, a point that should have been obvious at the outset: If the building assumptions relied on interest rates remaining near zero for years, the project would be out of touch with events.
Simple parts of the change plan seem to be working. Profits of £134m for the past year, up 6%, are hardly anyone’s idea of a triumph as they are miles away from the gains made in the old days, but they were enough for a 2% bonus for partners. This may be on the tokenistic end, but it is a measure of confidence after three years without additional rations.
The figure for the business as a whole was driving cash flow of £595m, up 63%. This will allay any long-standing concerns about the health of the balance sheet and provide the group with enough financial freedom to invest in both department stores and Waitrose.
This was possible because, previously, the department store portfolio had been given a necessary cut (despite protests from affected local shoppers) under former boss Dame Sharon White, taking the estate down to just 34 John Lewis. And the other element is firmly in the “keep it simple” operational area: basic things like rejigging working hours to ensure more partners are in stores at peak times, and overhauling IT systems.
Current production efforts include electronic shelf labels in supermarkets and finding efficiencies in the supply chain, for example, a new distribution facility in Bristol to serve Waitroses in the south west of England. None of this is original or significant but it is how a business with a turnover of £13.4bn has regained the lead in an age of fewer rivals on the high street and more online.
White’s target of generating 40% of profits from non-retail activities was abandoned before he left and the collapse of construction-to-rental disruptions has raised questions over the future of the John Lewis Money Financial Services business.
In fact, it’s certainly safe: Terry’s description of it as “a core enabler of our retail strategy” means that it’s somewhere between a credit card operation and a loyalty tool. Also, many retailers, including All Conquest Next, are in the credit card game. In the case of partnerships, it is adding an insurance offer. The next logical step is a proper loyalty card for the entire John Lewis empire. Free coffees at Waitrose don’t cut it.
A “cautious” trade approach (inevitable, given what might happen with inflation) means that there are actually several years of operational grind left for the desired “multi-year turnaround”. But the partnership should get there eventually.
