The wild celebrations typically seen at John Lewis’ Oxford Street store on bonus announcement day are to become a thing of the past – chairman Sharon White warns it is unlikely the prized payout will come next year for the first time in 67 years.
Before the financial crisis, John Lewis paid its partners as much as 20% of their salary and the number would be unveiled in a cheery ceremony within its flagship store, with staff lining the escalators. The partnership prides itself on treating its employees differently to rivals and the payout to partners is seen as a key differentiator at the mutual.
This year, with profits crashing, there was no such celebration but staff fears the bonus would be cut entirely for the first time since it was skipped in 1953 were allayed, with a 2% annual payout.
The bonus news in White’s missive to staff – revealed by the Evening Standard – was one of a string of changes, which include closing stores and one of its large offices in Victoria to cut costs. Some 32 of its 50 stores have so far been confirmed as reopening, with Oxford Street due on July 16.
The boss of the partnership, which also include Waitrose, has a mighty task on her hands after joining in February. So what does she need to do?
One of White’s key jobs is to improve profitability, and fast. Last year group profits fell 23% to £123 million. The retailer has been cutting its large pension deficit, but still faces threats to profitability including having, by its own admission, too many stores and short-term costs to build up its online business.
Independent retail analyst Nick Bubb observes: “The John Lewis profitability issue is partly a relatively low gross margin issue, driven by sales mix and [its famous price promise] Never Knowingly Undersold (NKU), and partly a high operating base issue.
“High costs are endemic to the department store model, but John Lewis also has a layer of central costs which needs to be tackled. John Lewis have done a great job of migrating half the business online, but they have been left with all the costs of the bricks and mortar stores and ultimately that can only be reduced by cutting space/closing stores.”
Analyst Richard Hyman add that merely focussing on cost won’t dig White out of a hole. “The solution with these business is not about cutting costs – yes that helps in the short term – but to survive you need to grow your bottom line. To do that you need to understand what your core shopper wants.”
A key priority for White will be deciding how far to integrate John Lewis and Waitrose. Historically the pair have made uneasy bedfellows, with tensions between the firms, however the growth of online has meant picking up John Lewis products in Waitrose stores has been handy for shoppers, and White has said she’s keen to sell more John Lewis product in the supermarkets.
Hyman argues that White should shy away from pulling the businesses too closely together, as they’re in such different markets.
Bubb adds: “One shared task the two businesses have is to re-think their attitude to providing customers with value for money. John Lewis has been needlessly throwing away margin through its over-zealous NKU policy and that needs to be tweaked to avoid excessive discounting.
“But Waitrose has been focused on maximising its gross margin to protect short-term profits and that approach looks unsustainable, as many customers start to want to find ways of reducing the cost of their weekly supermarket shopping.”
White’s status as an outsider, joining a business of 80,000 partners known for its bureaucracy, could prove helpful in bringing new vision and she has told staff she’s keen to equip the organisation for the next 100 years. Informing staff now that they’re unlikely to get the bonus next year feels a shrewd move.
Her response to lockdown, and how the organisation has mobilised has been impressive – Waitrose has doubled its online capacity and some services and products have been sold online for the first time.
However, there have been questions about the former Ofcom boss’ lack of retail experience and the timing of her arrival – just before lockdown brought arguably the biggest ever crisis in High Street retail – was unfortunate. “Sharon is a very impressive, bright woman. But I think the challenge that she has it that she has a lot of consultants around her at the moment and she doesn’t have the experience to critique them as she’s learning on the job. That’s a disadvantage.”
The strategic review White kicked off on arriving is due to report back to her this month. John Lewis’ customers and staff will be watching closely see if there’s any prospect of those heady bonus days ever returning.