The John Lewis Partnership, like all of retail, faces yet another volatile and uncertain Christmas trading period.
While some of the pandemic disruption has eased, Russia’s invasion of Ukraine and the cost-of-living crisis to which it has contributed mean that once again conditions could be described as unprecedented.
Changing shopping habits, such as moderating online performance after the pandemic boost, are also affecting performance.
After announcing a £99m loss in the first half, the John Lewis Partnership, comprising its eponymous department stores and grocer Waitrose, set out in stark terms the scale of the challenges facing it in the second half – challenges that will resonate in retail more widely.
Partnership chair Dame Sharon White is blunt about the scale of improvement needed for employees to receive the famous company bonus this year.
“We will need a substantial strengthening of performance, beyond what we usually achieve in the second half, to generate sufficient profit to share a Partnership bonus. Much will depend on the wider economic outlook and consumer sentiment,” she says.
So what is the takeaway from John Lewis chiefs on those considerations?
Anyday appeal
White views the government’s intervention on household energy bills as a potential “game-changer” in helping to boost sentiment.
New prime minister Liz Truss is freezing bills for two years, although the average bill of £2,500 is still steeply up compared with the start of the year.
White says the initiative “takes out quite a lot of the uncertainty and anxiety that has been suppressing consumer sentiment and the market”.
“I’d expect it to have quite a profound impact but we’re not complacent. We are leaning into value in an even more significant way,” she says.
“We will be really focused on affordability without letting go of the quality and service that customers expect”
Dame Sharon White, JLP
Value-for-money appeal is expected to be more important than ever this year, the first since John Lewis “retired” its Never Knowingly Undersold price promise.
However, John Lewis boss Pippa Wicks believes the department store and online business is offering better value than ever.
Sales of the Anyday value brand rose 28% versus last year and the range is being expanded.
John Lewis is also spending £500m on promotions – 25% more than it did on Never Knowingly Undersold, which Wicks says “lacked authenticity” because it did not apply to items bought online.
She maintains: “We’re now in control of where that money goes, so we can match to the customer buying behaviour and make promotions much more relevant. The promotions and brand promise are really elevating John Lewis.”
In big-ticket items, where retailers such as DFS have reported a slowdown, John Lewis aims to stimulate spending after reducing the threshold for interest-free credit from £1,000 to £500.
Food for thought
At Waitrose performance has been hit by changes such as moderating online growth and smaller basket sizes – also reported recently by Ocado. Customer desire for value for money is evident in demand for the Essentials range, products from which appear in seven out of 10 customer baskets.
Amid inflationary pressure – cost prices were up 4% in the first half, rising to 8% by the end – the retailer said that “tackling costs on behalf of our customers is a priority for the foreseeable future”.
Waitrose boss James Bailey is circumspect about prospects despite the government action. He says: “I don’t think describing [the coming months] as a boom would be where we’d be.”
Although he says help for consumers on bills “will relieve some pressure”, he believes they will still be very careful about how they manage their spend. “Our customers are impacted in lots of the same ways as everybody else’s,” he says.
Wicks points out, however, that some of the factors at play last Christmas are no longer present, enabling the retailer to be better set up for the peak period.
“85% of our [Christmas and Black Friday] stock is already in the country. Last year that wasn’t the case”
Pippa Wicks, John Lewis
She says: “Last year, running into Christmas, we had a number of headwinds across the industry. China and Vietnam were shut because of Covid, which affected supply chains. We had Omicron coming in December and January, so people became more nervous about shopping.
“We in John Lewis had such huge demand for Black Friday we actually had to hold back some sales, which we’re not going to be doing this year.”
The retailer says it has 15% more Black Friday stock than last year and 12% more Christmas stock – “85% of our stock is already in the country. Last year that wasn’t the case,” says Wicks.
She believes the retailer’s new ‘Moments’ positioning is also in tune with the times, perhaps coming even more into focus with the Queen’s death prompting people to reflect.
She says: “We think that will play into how people want to think about Christmas – having proper celebrations – hopefully, the first year that, touching wood, Christmas will not be impacted by Covid.
“We’re looking for people to have a thoughtful but family-oriented – in the wider sense – Christmas, which we’re excited about from a trading point of view.”
“The World Cup and Christmas tend to be two of the biggest events for a grocer in any given year so putting them together is really unprecedented”
James Bailey, Waitrose
Wicks also points out that this year the World Cup will take place in November and December, saying: “We think it will be a lovely time across both of the brands for our products to play into people’s lives.”
Bailey backs up that assertion: “The World Cup and Christmas tend to be two of the biggest events for a grocer in any given year so putting them together is really unprecedented.
“We’re going to have to work through the trade pattern – the supply and demand, the differences that creates. In the end, Christmas is one of those times that, in a tough year for very many people, I think intuitively people will want to celebrate with their family, have feel-good moments and food on the table, so that is the mood we’ll be delivering.”
White insists the Partnership is approaching the golden quarter in a mood of “confidence without naivety”.
While John Lewis may be outwardly confident, the headwinds facing the retailer – and the sector as a whole – mean the prospect of a strong end of the year would be nothing short of a Christmas miracle.
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