It turns out, the remedy for the John Lewis partnership’s post-Covid woes of a few years ago did not lie in seeking outside capital or building 10,000 buy-to-rent flats. Rather, the solution was the old-fashioned one of cutting costs and concentrating on basic shopkeeping.
As it happens, the wild idea of seeking external investors was virtually dead the moment it was loosely aired, such was the uproar among customers and staff about the threat to the 100%-employee owned model. But the home-building adventure did get going until it was ditched by the newish chair, Jason Tarry, a couple of weeks ago. He accepted, in effect, a point that should have been obvious at the outset: if the building assumptions relied on interest rates remaining at near-zero for years, the project would not survive contact with events.
The plainer parts of the turnaround plan seem to be working. Profits of £134m for the past year, up 6%, are nobody’s idea of a triumph since they’re miles away from what was achieved in the old days, but they were enough for a 2% bonus for partners. It may be at the tokenistic end, but it is a signal of some level of confidence after three years of no extra rations.
The important figure for the business as a whole was operating cashflow of £595m, up 63%. That will banish any lingering worries about the health of the balance sheet and provide enough financial freedom to keep the group on the virtuous path of investing in both the department stores and Waitrose.
It has been made possible because, first, the department store portfolio was given a necessary prune (despite howls of protest from affected local shoppers) under the former boss Dame Sharon White, taking the estate down to just 34 John Lewises. And the second factor is firmly in “keep it simple” operational territory: basic stuff like rejigging working hours to ensure more partners are in stores at peak times, and overhauling the IT systems.
Current productivity efforts include electronic shelf labels at the supermarkets and finding efficiencies in the supply chain via, for example, a new distribution facility in Bristol to serve Waitroses in the south-west of England. None of it is original or pioneering but it is how a business with overall turnover of £13.4bn regains an edge in an age of fewer competitors on the high street and more online.
White’s target of generating 40% of profits from non-retailing activities was abandoned before she left and the end of the build-to-rent distraction has prompted questions over the future of the John Lewis Money financial services business.
In reality, it’s surely safe: Tarry’s description of it as “a core enabler of our retail strategy” implies it lies somewhere between a credit card operation and a loyalty tool. Besides, many retailers, including all-conquering Next, are in the credit card game. In the partnership’s case, it is adding an insurance offer. The next logical move is a proper loyalty card for the whole John Lewis empire. Free coffees at Waitrose don’t cut it.
A “cautious” trading outlook (inevitable, given what could happen to inflation) means the intended “multi-year transformation” does indeed have multiple years of operational grind to go. But the partnership should get there eventually.
