John Lewis is not in a crisis – it has failed to adapt | Nils Pratley | Business
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In John Lewis’s Christmas advert, a fire-breathing CGI dragon caused havoc. Peak-season trading at the employee-owned business wasn’t quite that bad because Waitrose is destined to record same-again profits for the full year of £200m-ish. But profits at the department stores are unrecognisable.
The phrase “substantially lower” than last year’s £115m probably implies a profit figure as thin as £50m. Two years ago, the department stores made £258m. In those circumstances, the exit of Paula Nickolds, boss of the department stores, was inevitable. Her operation failed to pull its weight. Waitrose toilers, who may be deprived of a bonus because of shortfalls on the other side of the partnership, might be less diplomatic.
None of which is to deny that Nickolds inherited incendiary conditions when she got the job three years ago. House of Fraser and ailing Debenhams have been thrashing around with price cuts, which is a problem for a high-service competitor with a “never knowingly undersold” promise.
All the same, the sales decline in the department stores over the peak selling season was only 2% – weak but not catastrophic. The dramatic fall in profits would seem to owe much to a failure to adapt. Personal shopping assistants are nice adornments, but gritty management of margins and costs is what counts in the current climate.
Outgoing chairman Sir Charlie Mayfield has left a farewell plan for his successor, former Ofcom boss Dame Sharon White, in the form of a leaner, and centralised, management structure that, along with other changes, aims to save £100m a year “over time”. He might have thought of saving serious sums sooner. White could usefully add an instruction to the property department to shove some financial pain onto landlords: some of their shopping centres wouldn’t survive without John Lewis’ presence.
It’s still wrong to describe John Lewis as being in crisis. The balance sheet is healthy, the brand is strong and the online operation is slick. The partnership model isn’t under threat, as it was in the 1990s.
But, as with the now-formulaic Christmas ads, the department stores require fresh thinking. White is an outsider with no retailing experience, which many regard as a problem. It may be. Alternatively, she’s ideally placed to deliver a few home truths.