UK department store retailer John Lewis & Partners has warned full-year sales could decline by as much as 35%, and is accelerating its strategic review to be completed by the summer.
In an update today (21 April), the retailer said short-term trading has been “significantly” affected by the coronavirus (Covid-19) pandemic, mainly because of the closure of all 50 John Lewis branches.
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The pandemic, it says, has “significantly” changed the trading patterns at both its John Lewis and Waitrose & Partners supermarket stores, with the former recording a spike in online sales, up 84% year-on-year since the middle of March.
Overall, however, John Lewis sales are down 17% year-on-year since the middle of March, and down 7% year-on-year since 26 January.
For Waitrose, sales are up 8% year-on-year since 26 January, with demand for home delivery especially strong. The supermarket group has increased its capacity by 50%.
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However, new group chairman Sharon White says a worst case scenario for the full year assumes a “significant” sales decline between April and June, and weak sales thereafter.
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By GlobalData“Over the course of the full year, this worst case would result in a sales decline of around 35% in John Lewis, around double the current level, while at Waitrose it would result in a more modest decline of less than 5%.”
In March, John Lewis announced plans for a strategic review of the Partnership, due to be completed by the autumn, in order to strengthen its core retail business and develop new services outside retail. The plans are to slim down head office functions and promote closer working between Waitrose and John Lewis.
White says the review has now been accelerated “and will be substantially complete by the summer. It will seek to take account of changes in consumer behaviour to come out of the pandemic, such as a more pronounced shift to online and a desire to shop in more sustainable ways.”
For the 2019/20 period, the retailer recorded annual profits before its partner bonus programme, tax and exceptional items of GBP123m (US$158.9m). This 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 were 1.5% lower year-on-year at GBP11.5bn.
Seismic shift
Sofie Willmott, lead retail analyst at GlobalData, notes that John Lewis is in a better position than many other UK non-food retailers thanks to its strong brand image, robust online proposition and broad product range.
“Since it was forced to close its 50 stores on 23 March, the online channel has been a lifeline for the retailer, with its home delivery and click & collect options being maintained despite a surge in orders, enabling it to deliver a decent performance in the circumstances.
“Department store retailers have struggled in the past few years. However its wide ranging assortment has aided John Lewis & Partners’ performance in recent weeks and it has been able to highlight the relevant items it stocks that would not usually be in high demand. Seeking to improve their time spent in isolation, consumers have purchased sports equipment, home office items, toys & games and cooking and baking products – all of which John Lewis & Partners sells.
“Despite this, the need for these items will dwindle and the demand for other major sectors that it usually relies upon, like clothing and footwear, is unlikely to return immediately post-lockdown as shoppers prioritise spending on essentials.
“At a time of uncertainty and low consumer confidence, it is vital that John Lewis & Partners substantiates its reputation as a trustworthy retailer that looks after its staff and customers, in order to protect its future performance. So far, it has done a good job by implementing various measures, such as rewarding partners and paying those on furlough leave till the end of May while reducing the pay of the executive team and directors by 20%.
“All retailers are having to rapidly adapt to the seismic shift in consumer shopping habits caused by the Covid-19 pandemic and for a business that covers both non-food and food sectors, it will be tougher for the John Lewis Partnership. Given this and that it has recently lost the long-serving leaders of its two brands, Dame Sharon White is so far handling things well and despite its struggles in FY2019/20, John Lewis & Partners is well positioned to come out of the crisis as a survivor.”
