After a full-year profits plunge, John Lewis Partnership (JLP) outlined how it plans to win through being different. We delve into its strategy.
It may have been well-trailed but JLP’s full-year results did not make for pretty reading. Group profits before bonus, tax and exceptionals plummeted by 45.4% as tough trading conditions took a toll on its eponymous department store business in particular.
JLP chairman Sir Charlie Mayfield declared that retail was going through a “market adjustment” and said businesses now need to make a choice between scale and difference.
“Near-term uncertainty, politically and in the economy, is having a major impact on consumer confidence, but we do not believe the market conditions are cyclical,” he said.
“The disruption we have seen on the high street, including business failures and renewed interest in mergers and acquisitions, are instead signs of an inevitable market adjustment which will require greater clarity on whether brands are competing on scale or difference. The answer for the partnership is clear.”
The business will, Mayfield added, continue to make sure it is differentiating itself from its competition. But how?
The business has always relied on its partners to give it a point of difference and last year rebranded its two retail chains to Waitrose & Partners and John Lewis & Partners in a bid to highlight this.
“Our difference comes from our people, and the energy, commitment and personality they bring to delivering excellent customer service and high quality products to our customers,” the business said today. “This is signalled in our rebranding and is why we have stepped up investment so significantly in training and capability building.”
The average hourly rate of base pay is now £9.16, which is 17% above the National Living Wage
The partnership has invested in apprenticeships and partner training and raised pay. The average hourly rate of base pay is now £9.16, which is 17% above the National Living Wage.
It also gave leadership training to 250 of its most senior managers and expanded its apprenticeship programme, with more than 900 apprentices enrolling in retail, hospitality, human resources, LGV driving and finance.
While the resources allocated to partner development have increased, the number of partners at the business will continue to shrink. Partner numbers decreased from 93,800 in January 2015 to 83,900 this January and are set to decline at the same rate in the future.
This drive to fewer, better jobs is not specific to John Lewis, although the business has been leading on this strategy. Other retailers need to make sure that they too are getting the most from their staff.
John Lewis wants 50% of its sales to come from own-brand or exclusive product and invested significantly in womenswear last year in a bid to reach this target. Own-brand now comprises 34% of womenswear sales, up from 24% the prior year, and the partnership aims to do the same for menswear and homewares over the coming year.
In September, it will relaunch its own-brand menswear, having already added harder-to-find brands including Carhartt and Fjällräven to its roster.
Increasingly, how product is sold will be central to a retailer’s proposition. To this end, the business added beauty services, personal styling and concierge services to its stores over the past year and recruited brand ambassadors at both Waitrose and John Lewis.
This focus on own-brand and exclusive product will lessen John Lewis’ exposure to a highly discounted market
In this way, its product offer is underpinned by its partners’ exemplary service and knowledge.
This focus on own-brand and exclusive product will lessen John Lewis’ exposure to a highly discounted market, to which it is very vulnerable owing to its ‘Never Knowingly Undersold’ price promise.
Price-matching was responsible for around a quarter of its drop in profits, John Lewis managing director Paula Nickolds said, although even without that promise, the business would have had to maintain a competitive advantage by discounting.
In an environment in which power is switching to consumers and brands and away from retailers, it is key for businesses to maintain ownership over the product they sell.
The Partnership is taking a highly targeted approach to investment. “We anticipated five years ago that market conditions would worsen,” it said, explaining that it had engineered its balance sheet and investment decisions to ensure that it could invest between £400m and £500m every year.
Much of this investment is around technology with Waitrose investing particularly heavily in waitrose.com.
The business’ partnership with Ocado will end next year and it wants to ensure that it captures as many of its current Ocado customers as possible. It has invested £80m over the past five years in its website and will invest slightly more than that over the next five years.
Investment is the backbone of all of JLP’s plans and having enough cash in its reserves is crucial to its success. While many businesses with shareholders demanding returns are unable to ape this approach, making the right investment decisions at a time when new technologies are transforming how we shop and work is vital.