How John Lewis keeps making so much money

Despite recessions, reports of the death of the high street and competition from cut-price internet sites, John Lewis is prospering. So how does the department store keep making money while so many others go to the wall?

John Lewis had its best ever Christmas in 2012. In fact it had its best ever week too – with sales smashing through £150 million for the first time.

Over the week before Christmas takings at its 39 stores and website hit £157.8 million, a 26.5% increase on the same week in 2011.

Yet all around it other established chains are collapsing or issuing profit warnings. The past few months alone have seen Comet, Jessops, HMV and Blockbuster all go into administration.

“By any standards, this is an impressive performance, but when the general trading environment over Christmas is taken into account it underlines the fact that John Lewis is outperforming the market by a very significant degree,” Neil Saunders, managing director of retail consultancy Conlumino, told Reuters.

Value, not price

In an environment of austerity and frugality it’s no surprise that discount chains such as Aldi and Lidl and pound shops have flourished: These shops save people money. But a high-end retailer doing so well is arguably more surprising.

But despite 2012 still seeing a struggling economy and job losses, there were a few external factors that helped boost sales at John Lewis.

These included the feel good factor of the Diamond Jubilee, and the fact that the VAT increase depressed sales in 2011. The Olympics and Paralympics undoubtedly helped boost sales - John Lewis was a sponsor the games and sold official merchandise.

The demise of Comet just before Christmas and the row over Amazon’s UK tax arrangements were also touted as providing a boost to the  company at the end of 2012.

A Comet store on the final day of trading Image: REUTERS/Neil Hall


Another factor is that, despite being known as a quality brand, both John Lewis and its supermarket division Waitrose have long stressed the affordability of their products.

John Lewis’ “Never Knowingly Undersold” slogan is one of the best known in the business, promising to match the prices offered by rivals. At the same time the department store’s supermarket division - Waitrose - has a “brand price match” scheme that promises to beat rival supermarkets.

The shop – which is a partnership owned by its staff rather than a company owned by shareholders and run for profit – has another advantage. People trust it.

It ranked seventh on a poll of the UK’s favourite brands compiled by YouGov last summer. Meanwhile a survey by price comparison site uSwitch showed that 75% of Brits would trust John Lewis if it were a bank.

These figures are backed up by users’ experiences.

“The reason John Lewis do well is because they have some idea of customer service, mostly the staff have pride in the store. I can't think of a single other store (chain) that comes anywhere near,” wrote Yahoo! user Anthony on story looking at how shops did over Christmas.

 “Quite simply really..... JL has good pricing, good guarantees and excellent customer service,” added Yahoo! user CHOCOL8.

Other readers pointed out that John Lewis will replace or refund faulty goods without quibbling and that staff were treated well and therefore happy to offer decent customer service.

An Ocado leaves the Ocado depot in (REUTERS/Suzanne Plunkett)


Embracing change

While other high-street shops went hesitantly into the online world, John Lewis leapt in with both feet.  It began delivering groceries directly to homes through an online service in 2000 and launched JohnLewis.com in 2001.

What’s more, they realised that they could offer something purely online retailers couldn’t – by using its shops to provide next-day delivery. Order something before 7pm through John Lewis’ “click-and-collect” system and it will be in a store you specify by 2pm the next day. At no cost.

This proved incredibly popular and saw online sales at John Lewis smash records. On 17 December alone online sales hit £7.8 million, an all time high for the 150-year-old retailer, but just part of the wider story. The latest figures show Johnlewis.com now accounts for a quarter of the total John Lewis business.

“Sales at Johnlewis.com broke through the £800 million milestone during December supported by an excellent performance from our click-and-collect facility,” said Andy Street, managing director of John Lewis.

“In an economic climate which continues to be volatile, to have achieved these results is testimony to the strength of the John Lewis brand and the commitment of all our partners. The success of our online operation and our pre-eminence as an omni-channel retailer cannot be underestimated.”

Staff at John Lewis, Westfield, celebrate 2012's Partner's bonus. Image: Stefan Rousseau/PA Wire


A better way to do business

Another key factor in the store’s success the way it is owned. The biggest employee-owned company in the UK, all 76,500 of John Lewis's permanent staff are classed as “partners” and they ultimately own the retailer's 39 department stores and 272 Waitrose supermarkets.

Essentially the structure gives management the freedom to be entrepreneurial and competitive in the way they run the company, while giving employees active involvement in the business.

It’s a set-up bound to aid staff motivation and customer service. Instead of profits ending up in the pockets of fat cat bosses or shareholders, staff see the cash in terms of an annual bonus.

All staff – from chairman Charlie Mayfield down to shelf-stackers – receive the same percentage payout that rises or falls in line with the chain’s financial fortunes. Last year its staff received 14% which is the equivalent of more than 7 weeks' pay.

John Lewis's ownership structure was established by John Spedan Lewis whose father founded the business in 1864. Signing away his ownership rights in 1929, he aimed to allow future generations of employees to take forward his "experiment in industrial democracy".

The figures from Christmas 2012 suggest his experiment is working.