What note will Sir Charlie Mayfield, the outgoing chairman of the John Lewis Partnership, leave for his successor, Dame Sharon White, when she takes over next month?
If it begins “there’s no money left”, Liam Byrne-style, it wouldn’t be a surprise, such is the chaotic state of affairs he is leaving behind. After more than 12 years of careful oversight which has seen the business through some difficult times, Mayfield leaves it at a precarious point in its history.
On arrival, White, fresh from her successful four-year reign as boss of Ofcom, inherits a newly created management board which not only has vacant seats for vital roles such as head of strategy and head of brand, but has been tasked with the complex job of knitting together the John Lewis and Waitrose chains, which have always been managed separately.
The reshuffle has not only resulted in the departure of the managing directors of both businesses – Rob Collins at Waitrose and Paula Nickolds at John Lewis – but also appears to muddy the waters on lines of responsibility for the two brands. What’s worse, more than 70 senior executives are to leave the business, taking decades of knowledge and experience with them.
It’s clear that, given its increasingly straitened finances, the group’s top-heavy management structure needed to be brought into line, but such change would be challenging even with an experienced retailer and John Lewis lifer in the chair. For White, it could be a white-knuckle ride. In such a tough market, there will be little room for error or learning experiences.
Waitrose had a robust Christmas, holding market share despite closing 12 stores, and John Lewis’s department stores are at least weathering the storm better than rivals, many of which have gone into administration or are rapidly shutting stores. The imminent closure of nearly 20 Debenhams stores, several more House of Frasers and potentially 20 Beales department stores, will remove capacity from an overcrowded market and could signal an end to the heavy discounting that has been destroying profitability.
To avoid its rivals’ fate, John Lewis will need to make its own tough moves on costs while carefully preserving the service culture and staff care it claims are at the heart of its brand. Cutting corners too hard will only send its loyal customers and valued workers running elsewhere.
There is evidence that efforts to save money – such as changes to its curtain and carpet services – were shortsighted in a retailer that prides itself on customer service. The relocation of call centre jobs – which had already been outsourced to US firm Sitel – to the Philippines also looks very off-brand for a venerable British institution.
Avoiding wasteful indulgences will be a start. The decision to spend cash on the “& Partners” rebrand for both chains was a vanity exercise that has largely gone unnoticed by the general public.
One of White’s first decisions will be whether to pay a bonus to staff, a measure that cost the business £44m last year. That sum could come in handy in a potentially difficult year, with Brexit to the fore and further cost rises – not least from the latest increase in the legal minimum wage in April – on the horizon.
It will be tempting for White to hoard cash for a rainy day, but who would want to steer a ship through stormy seas with your crew in mutiny? It also seems wrong to punish the staff who have toiled through Christmas on the shopfloor when many problems stem from management failure – particularly in department stores, where Nickolds did not have the answers.
John Lewis is the country’s largest employee-owned business, with more than 80,000 staff, known as partners. But as it stands today it is no advert for a model once lauded in the corridors of power. The group prides itself on strong democratic principles that mean “every partner has a say in how the organisation is run”. Maybe management should be listening harder to what they have to say, because the departing management team has left the organisation in an almighty hole.
Willie Walsh’s exit from BA owner shows his pragmatic side
Aviation is full of characters, but with the upcoming retirement of Willie Walsh, the industry is losing one of its most colourful. The boss of British Airways’ owner, International Airlines Group, has had the adjective “pugnacious” attached to his name more often than any other, and for good reason.
One moment perhaps sums him up. A protracted war of words with Sir Richard Branson saw the billionaire bet Walsh £1m that the Virgin Atlantic brand would survive a tie-up with the US airline Delta. Walsh upped the ante, suggesting the stake should instead be a “knee in the groin”. Both men claimed to have won the bet, and painful injury was avoided.
A legacy of anecdotes is one thing, but what of Walsh’s record, first as chief executive of BA and then in charge of IAG?
There’s no doubt that he orchestrated one of the landmark deals in the history of European commercial aviation by bringing together BA and Iberia to create IAG, via a £5bn merger. He had assessed the difficulty full-service carriers were facing, particularly from the rise of low-cost competitors, and concluded there was safety in numbers. The group’s performance since then has, by and large, vindicated that view.
But some observers will ask: at what price? Shareholders may be happy but BA customers point to a service that has been hollowed out by underinvestment. Not only has the UK’s one-time flag carrier been subsumed into a group, but critics say the experience of flying with BA is a pale echo of former glories.
The airline has begun investing again to restore its reputation, but it’s far from clear how successful that will be. Walsh, one might argue, is getting out at just the right time.
Ever the pragmatist, the Irishman is unlikely to be wounded by such criticism. And even if he were, he’s not the type to let it show.
Carney right to be ready for a rate cut
The British economy has begun the new year with little momentum from the last. Political uncertainty and Brexit, alongside a slowdown in the global economy, have dragged down business investment – weighing on the economy to the extent that growth probably flatlined in the final three months of 2019.
It is against this backdrop that Mark Carney suggested last week that the Bank of England could come riding to the rescue with an interest rate cut, in one of his final acts as governor before standing down in March to be replaced by Andrew Bailey.
Such is the impact of Brexit, and the weakness of Britain’s economic recovery over the past decade, that Carney could leave Threadneedle Street with rates at 0.5%, exactly as they were when he joined in 2013 – denoting an economy on life support, with rates stuck close to the lowest point in the Bank’s 325-year history.
On the one hand, his proposed intervention appears increasingly important, supporting families and companies with cheaper borrowing costs as they battle to keep their heads above water. Demand for goods, services and new construction has been weak, with company spending plans on hold until greater clarity on Brexit emerges. Overseas orders have started to dry up. The jobs market is deteriorating. Rising Middle East tensions and stuttering post-Brexit trade talks with the EU could hold down future growth.
On the other hand, Boris Johnson’s unexpectedly decisive election victory has lifted some of the Brexit fog clinging to Britain, while Donald Trump’s phase-one trade deal with China could spur a recovery in global trade. There are certainly reasons to hope the 2019 slump was a nadir.
Carney knows that Britain stands at this inflection point. Where interest rates go depends on how households and companies might adapt to the changes. For now, it might be best to wait and see how things develop, but it is vital that the Bank stand ready to act.