UK high street department store John Lewis is launching a strategic review of its business following a full-year profit tumble of 23% year-on-year.
For the 2019/20 period, the retailer recorded annual profits before its partner bonus program, tax and exceptional items of GBP123m (US$158.9m). This, it said, was driven by a one-off reduction in the value of its John Lewis shops of GBP123m principally as a result of shops playing less of a role in driving online purchases.
Gross sales, meanwhile, were 1.5% lower year-on-year at GBP11.5bn.
During the period, the partnership merged its John Lewis and Waitrose operations.
Going forward, it plans to slim down its head office functions and promote closer working between Partners in Waitrose and John Lewis.
“It will cut costs and over time make it easier for customers to shop across the two brands. As we restructure, we will take care not to lose the distinctive nature of the two brands,” explained newly appointed chairman, Sharon White.
“We need to reverse our profit decline and return to growth so that we can invest more in our customers and in our Partners. This will require a transformation in how we operate as a Partnership and could take three to five years to show results. We are stepping into a vital new phase for the Partnership and I have no doubt we will come through it stronger.”
She added: “The strategic review will focus on how we strengthen our core retail business and develop new services outside retail. As part of this we will also look at ‘right-sizing’ our store estate across both brands, through a combination of new formats and new locations; repurposing and space reductions of existing stores; and closures, where necessary.”
The review is expected to be complete by the autumn and White said a further update will be given with the half-year results, at which point “every Partner will be clear on the concrete plan and what the future means for their area and for the Partnership”.
Commenting on the numbers, Sofie Willmott, lead analyst at GlobalData, said: “As UK department store retailers continue to struggle in a competitive landscape laden with product choice and hindered by weak consumer confidence, John Lewis & Partners is no exception, reporting a disappointing full-year performance against feeble comparatives.
“The wheels are already in motion to bring the two brands together with the aim to reduce costs and boost profits for the partnership but it remains to be seen how closely they can be merged given the very different purposes (yet same culture and ethics) of the organisations. A separate leader of each brand would seem logical given strong leadership experience of both a grocer and a non-food retailer will be difficult to find.
“Plans to close stores were mooted again, preparing partners for probably a handful of its 50 shops to shutter over the next year or so. Despite having fewer stores than its competitors, such as Debenhams which is closing one-third of stores to bring its portfolio to just over 100, John Lewis & Partners’ branches are large and costly to run given the staff and stock needed to fill the space. As a significant chunk of its sales are now generated online and digital investment is planned to make the website ‘easier to shop’, the retailer can afford to streamline its estate and cull non-profitable branches, without taking a big hit on sales.
“Today’s results are far from encouraging however John Lewis & Partners’ plans will ensure it remains relevant to UK shoppers and its increased focus on quality, service (and services), value and sustainability will continue to be the backbone to its strong and well-respected brand image.”