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The decisions facing John Lewis as it tries to halt fall in profits | Business


John Lewis has announced the departure of its department store boss after revealing that the shops suffered a 2% drop in sales over the Christmas period. Here are some of the problems that John Lewis needs to address in order to turn around one of the biggest names in British retail.

Action on costs

John Lewis was not alone in losing sales in a tough market. The store chain’s fashion and beauty sales held up well, gaining market share, but it lost out on electronics (a highly competitive field) and suffered from the downturn in home furnishings. The company said that department store profits were mostly affected by continued investment in IT and holding on to staff to maintain service despite the tough market.

The dive in profits shows that John Lewis needs to play it much smarter on costs. Finding new ways of working behind the scenes so that service on the shop floor is preserved, taking out unnecessary management roles and automating more tasks will be key. Some of these things are under way but the lesson from Christmas is that action must be urgently stepped up.

Sharon White, the new chair of the John Lewis Partnership, the parent of the stores and the Waitrose supermarket chain, must make a key cost decision when she starts her job in February: whether to keep the annual staff bonus. It is a benefit that helps attract, maintain and motivate workers across the company, which also owns Waitrose. But it cost about £44m last year. White will have to make the call on whether it is worth taking the hit.

Property

Another major cost area is John Lewis’s 50-strong portfolio of stores. White is expected to review whether all these sites will be a part of the chain’s future.

Costs could and should be reduced by downsizing and leasing out parts of some sites, and being much tougher with landlords. John Lewis’s competitors House of Fraser and Debenhams are on the ropes. If landlords want a viable department store attractive to sought-after middle-class shoppers they should be able to help out with rent cuts or other benefits.

Marketing





Excitable Edgar in the window displays at the Oxford Street flagship store



Edgar the excitable dragon was the star of the 2019 Christmas ad for John Lewis and Waitrose. Photograph: Matthew Chattle/Barcroft Media

John Lewis’s Christmas ad has grown into a marketing event that kicks off the Christmas season for many but there is a feeling its impact is on the wane. In 2019 the partnership appeared to cut costs with a combined effort for Waitrose and John Lewis.

Perhaps it is time for a complete rethink. The format is becoming tired and there may be more effective, and cheaper, ways of reaching customers using social media and digital channels rather than a blingy TV adverts.

Management

White comes to the John Lewis Partnership with a glittering CV – including leadership of the communications regulator, Ofcom – but she has no experience of retail. She joins a company that has suffered a severe brain drain. Three of the parent group’s top four executives are departing, taking decades of experience and knowledge with them.

On arrival she will be spearheading a totally new management structure, which dramatically cuts costs but is likely to have been a challenge even for those incumbents to navigate. The departure of the John Lewis boss Paula Nickolds, who was set to be head of brand across Waitrose and John Lewis in the new structure, leaves at least two key jobs still vacant at the top of the organisation. The director of strategy role is also yet to be filled.

Where to start? Bedding in a new management structure and way of working while trying to cope with a rapidly changing market will be a real challenge. Working out who to trust, and where to bring in new blood, will be key to success.

Price

With discounting becoming an almost permanent fixture on the British high street, many commentators question the logic of John Lewis’s “never knowingly undersold” (NKU) price promise.

Pledging to match high street (but importantly not online) rivals’ discounts on branded products is an expensive promise.

John Lewis argues that the pledge was not a major contributor to the dive in profits this year as levels of discounting across the high street were similar to 2018. Arguably, the retailer would not be around for long if it did not closely match rivals’ prices on items that are easily comparable at the click of a smartphone, so why not highlight such practices with a handy marketing line?

If ditching NKU is not the way forward, the answer could lie in attractive and well-priced own-label and exclusive lines that are not subject to direct competition.

Customer service

In a tricky market where slick operators such as AO.com and Argos are there to take business, John Lewis must review whether it can profitably and successfully handle deliveries of washing machines, fridges, cookers and other major household items. Many of its department store rivals moved out of such markets a while ago. A partnership with AO or other reliable player may be the answer.



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