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John Lewis partnership model: what it is and how it may change

People walk past a temporarily closed John Lewis department store on Oxford Street in London, Britain, March 24, 2021. REUTERS/John Sibley
John Lewis is considering a plan to change its staff-owned structure. Photo: John Sibley/Reuters (John Sibley / reuters)

Retail group John Lewis is mulling changes to its 100% employee ownership model to raise fresh investment, upending more than 70 years of tradition.

Sharon White, John Lewis chairperson, is in the early stages of exploring a plan to change the firm's mutual structure in an attempt to raise up to £2bn ($2.4bn) of new investment, according to The Sunday Times.

The John Lewis Partnership, which also owns Waitrose, is the UK's biggest employee-owned business with around 74,000 staff, known as partners.

Staff at every level of the business, from shelf stackers to senior corporate staff, receive the same percentage of their annual salary as a bonus.

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While the proposals to raise new money are said to be in the early stages, proponents of the mutual model warned against watering down more than 70 years of 100% employee ownership.

Read more: John Lewis scraps staff bonus after £234m loss

A source told the Sunday Times that the priority in any potential deal will be to ensure employees retain majority control, while prospective investors will need to have an affection for the retailer and its many “quirks and eccentricities”.

Labour’s shadow trade minister Gareth Thomas said the proposal was “very worrying” and reflected the UK’s failure to expand the “permanent capital” model that British building societies can use to raise funds.

John Hawksworth, former chief economist at accounting firm PwC, said moving away from mutual ownership would be “terribly short-sighted”.

Any move would have to be voted on by the retailer's partnership council of about 60 staff. More than two-thirds of the council would need to approve the plan.

However, any money raised through selling shares would go into the business, rather than to staff.

The John Lewis Partnership said: "We've always said we would seek partnerships to help fund our transformation and exciting growth plans.

"We've done this with Ocado (OCDO.L) in the past and now with abrdn (ABDN.L). Our partners, who own the business, will be the first to hear about any developments."

Neil Saunders, retail analyst at GlobalData Retail, called the plan to sell a stake in the business “half-baked” and “risky”.

Read more: UK house prices rise by £3,000 in March

“It will cause internal division and hurt partner morale at a time when it is already very low,” he said.

Former John Lewis boss Andy Street said it would be a “tragedy” if the retailer changed its partnership model.

Street, the mayor of the West Midlands, who served as John Lewis' managing director from 2007 to 2016, criticised plans being considered by the partnership’s senior leadership that could result in a stake being sold to an outside investor.

Street told the BBC's Sunday with Laura Kuenssberg: “It would be a tragedy if that occurred because I think John Lewis goes a bit beyond a shop.

“You can buy the same television in other places in truth, but John Lewis was about a way of doing business, showing the market there was a better way almost and that's potentially under threat.”

Former Downing Street adviser Mary Portas said John Lewis had “let go of its soul” under boss Sharon White in an open letter posted on LinkedIn.

The retailer has struggled in recent years to grow its sales and keep its cost base down, with White saying “inflation has hit us like a hurricane” on a call with media last week.

The retailer said it would have to cut staff numbers and scrap bonuses this year, flagging an uncertain outlook as customers struggle with inflation.

A loss of £78m was recorded for the financial year which ended in January. When exceptional costs were added the figure reached £234m.

The business was born when John Lewis opened a small draper's shop on Oxford Street, London, in 1864.

John Lewis Partnership was put into a trust in 1950 by the founder’s son John Spedan Lewis. He set up the partnership as an experiment into a better way of doing business by including staff in decision making.

Watch: No staff bonus at John Lewis as partnership plunges to hefty losses

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