John Lewis: the Partners stumble

There are plenty of retail results being announced this week, and this combined with the Westfield opening has made for a packed week of shop news.

The standout announcement – and not in a good way – was of John Lewis’s interim results for the six months to 30th July.  The Partnership has been the darling of Middle England shoppers and Big Society boosters, but a 54% fall in operating profits at John Lewis stores has come as a shock.  JLP has argued that it has been making high levels of capital investment – fair enough, and good for them; but it has also conceded that the Never Knowingly Undersold price promise has cost £9m in lost margin over the six month period.

Tough times are the new normal in retailing, but the figures that caught my eye were in yesterday’s Times (behind the paywall).  These listed the John Lewis stores that delivered the best and worst like-for-likes for the six month period:

Best: +26%; Peter Jones +2.3%; Cambridge +0.9%; Oxford Street +0.8%; Trafford -1.5%


Reading: -9%; Bristol Cribbs -8.7%; Newcastle – 7.9%; High Wycombe -7.4%; Southampton -7%.

So… out of around thirty department stores, four of the five worst performers are in the Sunny South.  This suggests a couple of things to me:

1. The most archetypal of John Lewis customers are tightening their belts by several notches.  They may be suffering a real loss of income; they may be paying down debts; they will be coping with inflation on essentials (fuel, utilities, food), and they will be fearful for the future.

2. They’re going online more and more.  As you will know, internet penetration into the UK retail sector is the highest in the world, running at around 10%.  The price/convenience/selection that online retailers offer will have hit JLP in different ways, forcing price matching activity or simply bleeding customers away to lower cost sellers (particularly on branded goods).

But John Lewis’s own dot-com is up by 26%.  In part, I imagine that the good folk of St Ives or Rhyl will be making more use of the site to buy from a retailer whose stores are too far from home.  But I suspect there is significant cannibalisation taking place as well.  Indeed, I note that more orders are being placed with in this household, despite the fact the we live just one mile from a huge JLP store.  Why?  Convenience, and price – particularly for staples.  Travelling that whole mile (through one-way systems, parking charges and other anti-shopper obstructions) still ends up taking a couple of hours, whereas pillowcases (say) can be bought online in three minutes flat.

I won’t attempt to dissect Waitrose; but Wednesday’s contrasting figures from Next plc tell their own story.  First-half profits were up by 8.5%; margins are being vigorously maintained, and with the great bulk of Next’s stock own-brand, there isn’t the brand-price pressure that JLP feels online and thanks to Never Knowingly Undersold.  Small stores are being closed and consolidated into larger units, and the online/Directory end of the business continues to grow.  Next is never showy, never chases column inches or super-growth, but instead gets on with what it does best, with the extension of the Home offer its most interesting strategic development.  Simon Wolfson can be Eeyore-ish, but tends also to be right – he’s warned today, for instance, of the likely impact that higher student fees will have on sales of teenage fashion.

John Lewis doesn’t have the City on its back, being answerable only to its own staff-partners.  But the partners will see lower bonuses this year, and will recognise that even the best can falter.  As Philip Dorgan, of analysts Panmure Gordon, said in the Telegraph: “I don’t understand why so many people have this love affair with John Lewis. The numbers are just not that good. Most of its competitors are managing to keep their profits stable or increase them. It’s all very well saying they are a private company and that it doesn’t matter how much profit it makes. It does matter very much to the partners.”

Customers, sector analysts and partners will all be watching closely to see how JLP retrenches and moves forward again.