John Lewis Partnership (JLP) today (Wednesday June 27) outlined the next phase of its strategy, designed to develop and strengthen the business.
With annual gross sales of over £11.5 billion, the retailer operates 50 John Lewis shops across the UK, johnlewis.com, 353 Waitrose shops, waitrose.com and business-to-business contracts in the UK and abroad. It is the UK’s largest example of an employee-owned company where all 85,500 staff are ‘Partners’ in the business.
The key points are: an increased focus across the whole business on competing through differentiation and innovation, not scale; investing at a rate of £400 million -£500 million per year and taking further steps worth £500 million over three years to strengthen the balance sheet; and recognising and enhancing the role that the ‘Partners’ play in the differentiation of both Waitrose and John Lewis.
JLP said: ‘The Partnership starts in a strong position. It has two excellent brands in Waitrose and John Lewis with a proven capability to develop unique products in food and non-food that are highly valued by customers. The business has a store estate that is better sized and better quality than its competitors, combined with a leading capability online. Through its ‘Partners’, JLP has a greater level of expertise and achieves higher service standards.
Focus on differentiation
‘It is widely acknowledged that the retail sector is going through a period of generational change and every retailer’s response will be different. For us, the focus is on greater differentiation – not scale.
‘We have clear plans to build on our strengths and to sharpen our points of difference in both Waitrose and John Lewis. These include further investment in and development of unique products and service, together with a greater emphasis on own-brand and innovation.
Waitrose will focus on core customers. Over half of Waitrose’s products are now own-brand and there are plans to extend further the range of exclusive products while continuing to raise the quality. This will include a greater focus on health and wellbeing: a fast-growing category that appeals strongly to core customers.
‘This will be delivered with an extraordinary level of service. In our shops, every Waitrose ‘Partner’ will be a Food Ambassador and there will be an increase in the number of specialists to advise customers. As part of this, waitrose.com continues to be a focus, with a greater emphasis on serving core customers. As a result, our online sales are currently growing at 21% on last year – higher than any established grocer.
‘At John Lewis, the focus will be in three key areas: unique products, personal service and expanding into new services. At the heart of the strategy is developing a curated and targeted assortment, which is increasingly unique to John Lewis.
‘Key to this is supercharging women’s fashion, acquiring new niche brands, securing exclusives with international brands and significantly growing design capability.
‘Customer reviews of John Lewis’ own-brands this year exceeded that of other brands, scoring an average rating of 4.5 out of 5. Currently 30% of John Lewis’ sales are from products that are own-brand and exclusive products. Our ambition is to increase this to 50%.
‘Our service will centre around creating an exceptional experience in shops, empowering ‘Partners’ through technology and investing in ‘Partner’ skills. Work has started to tap into the burgeoning customer demand for trusted advice and expertise in fashion and home. This is a significant opportunity and will play a major role in our shift to personalised service versus ubiquitous transactional shopping.
‘And John Lewis will expand beyond shops and online into new and enhanced services, with a focus on strengthening its position in the home services market and growing financial services. The acquisition of home improvements business Opun earlier this month is one step in this direction.
Profit and investment
‘These innovations rely on sustained investment. Our financial strategy is designed to ensure that the business is able to maintain investment whatever the economic environment. The Partnership has already taken steps to strengthen its balance sheet by £750 million over the last three years to ensure the necessary financial firepower to invest while also reducing debt. We are also committed to maintaining a debt ratio position of around three times within around five years.
‘We expect the Partnership’s half year profits before exceptional items – which are always much lower and more volatile than the second half – to be close to zero this year.
‘For the full year there are a wide range of possible outcomes, given the market uncertainty, but we are currently assuming that profits before exceptional items will be substantially lower than last year.
‘The Partnership currently expects to see profit growth in Waitrose, a decline in John Lewis and significant extra costs at the Partnership level as a result of greater IT investment, which will be a big driver behind the overall profit change.
‘Today the Partnership has announced that it will take steps to strengthen its balance sheet by a further £500m over three years to invest in product and service innovation. This will be achieved by rebuilding profitability at Waitrose, creating more value from the property estate, and conducting a review of the Partnership’s pension scheme.
‘As a result, the Partnership expects its cash position for this year to be in line or ahead of last year and its liquidity position to be the best it has been for 10 years. This will allow us to maintain investment at a rate of £400 million to £500 million a year. We expect our level of capital investment as a percentage of sales will be more than 10% ahead of typical competitors.
‘Unlike many of its competitors, JLP has a well-balanced and well located store portfolio, with 353 Waitrose shops and 50 John Lewis. As we develop our plans to prioritise differentiation, we will continue to make adjustments to our overall estate, including exit or closures – but at a rate that’s in line with what we have seen over the last few years. To this end, Waitrose today announced the disposal of four convenience shops and one small supermarket.
‘Partners’ are JLP’s point of difference and its competitive advantage and investment in them will continue. For example, this year the average increase in total hourly pay for ‘Partners’ who have worked in the business for more than one year was 4.5%. We will continue to invest in pay and have set an ambition to make the Partnership one of the healthiest places to work by 2025.
‘As a sign of the Partnership’s intent, from September the two brands that make up the business will be known as Waitrose & Partners and John Lewis & Partners. More details will be announced in the coming months.
JLP chairman Sir Charlie Mayfield concluded: “JLP is a unique business with different ownership, a different purpose and a different outlook to any of our competitors. As retail changes we need to tread a path that enables us to thrive as a business, while building on the qualities that make us different. For us, the relentless pursuit of greater scale is not the right course.
“Our plans put differentiation, innovation and ‘Partner’-led service at the heart of our offer. The measures that we have outlined today are an important next step in our strategy, that will ensure we emerge stronger from this period of profound change.”
JLP chairman Sir Charlie Mayfield