John Lewis and Waitrose owner warns profits in the first half of 2018 will be ‘close to zero’
John Lewis Partnership, which owns John Lewis department stores and the Waitrose supermarket chain, has warned that profits in the first half of the year will be “close to zero”.
Last year the group made £26.6m in the first half, and blamed heavy investment for this year’s expected fall. It also announced it would change the names of its stores to John Lewis & Partners and Waitrose & Partners.
The retailer said its Waitrose chain would close five of its 353 shops. It also has 50 John Lewis department stores.
The name change to Waitrose & Partners and John Lewis & Partners was intended to emphasis the importance of the chain’s 85,000 members of staff, known as “partners” who are given an annual bonus based on the chain’s profits. The aim of the rebranding was to differentiate the group from other retailers, the company said.
The rebranding will begin in September with London’s Oxford Street store.
Two Little Waitrose stores will close in Manchester, one in Birmingham and one in central London. It will also shut its supermarket in Camden in London.
In a statement John Lewis said it was widely acknowledged that the retail sector was going through a period of “generational change”.
Its response would be to focus on “greater differentiation – not scale” and invest more in developing “unique” products and services, as well as placing more emphasis on its own brand.
It said it would continue to invest between £400m and £500m per year in the business.
As well as warning it did not expect to make any profit in the first half of the year, it said there were a “wide range of possible outcomes, for the full year, given the market uncertainty”.
It said it was assuming that profits before exceptional items would be “substantially lower” than last year’s £290m.
While profits are expected to grow at Waitrose, the John Lewis department stores are expected to see profits decline this year.
In March, John Lewis Partnership announced that bonuses had been cut for the fifth year in a row. Employees got a 5% bonus, down from 6% last year and the lowest since the 4% paid out in 1954.
Richard Lim, chief executive of Retail Economics, said the group was facing a “cocktail of pressures” on its profitability.
Many retailers have come under pressure in recent months thanks to the growth of online shopping and lower footfall on High Streets, combined with rising costs and a fall in consumer confidence.
Retail experts have said one solution is to offer “experiences” that shoppers cannot get online.
For John Lewis, one example of that is personal shopping.
The new John Lewis store in Shepherd’s Bush in west London has a team of six personal shoppers to help customers select fashion items and outfits.
According to a spokeswoman, customers who used the service spent on average 30% more a year following their appointments, than people who had not used it.
The six personal shoppers generated one fifth of the total womenswear sales in the store, she added.
John Lewis also plans to build a presence in the home services market, offering plumbing and electrical work, as well as financial services.
Sir Charlie Mayfield, chairman of the John Lewis Partnership, said: “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.”
However, the group added, the changes it was making relied on “sustained investment”.
It said it would raise £500m by over three years to invest in “product and service innovation”.
Media captionSir Charlie Mayfield says in today’s retail climate ‘just being good isn’t really good enough’
It said it would raise the funds by “rebuilding profitability at Waitrose”, getting more out of its property, by putting space it does not need to other uses, and “conducting a review of the partnership’s pension scheme” which has an accounting deficit of £731m.
Sir Charlie told the BBC the pension fund would “only change if partners want it to change, but… it’s a £6bn pension fund so there may be opportunities for us to make small changes there that could add up to significant amounts of money over long periods of time”.
Mr Lim of Retail Economics said John Lewis “used to be the retailer that everyone looked at as being a success story on the High Street”.
But this latest announcement suggests in the current climate it is becoming “increasingly difficult for businesses to ride out structural change in the industry”, he added. “If John Lewis is finding it difficult I’m sure a number of other retailers are in a similar situation.”