John Lewis full-price strategy pays off as Christmas margins hold firm

John Lewis like-for-likes jumped 6.9% in the five weeks to December 28, propelled by online growth. Digital sales were up 22.6% and accounted for 31.8% of the total. Store sales edged up 1.2%.

Street said it was too early to give a figure on gross margin but expects it to be in line with last year.

“Was it diluted this year? The answer is no. We will have to wait until the year is out [to calculate a margin figure], it’s all about stock taking and the mix as it pans out, but it looks pretty similar to last year.”

John Lewis price matched rivals in the run up to Christmas in line with its Never Knowingly Undersold price promise, but outside of that did not launch discounts until its planned clearance Sale on December 27.

Street said John Lewis benefitted as it “held its nerve”. He added: “In total I don’t think discounting was any more than last year, it was about the same.”

Rival Debenhams issued a profit warning last week after discounting during what it called a “highly competitive” promotional environment.

Street declined to comment on competitors but said John Lewis’ multichannel offer differentiated it from rivals.

“The thing that really stands out for us is we’ve now got 32% of our trade online, none of our competitors have got anywhere near that,” he said. “We’ve worked out how the two go hand in glove. There’s a lot of stuff in the media about bricks versus clicks, or ‘online stole Christmas’, but that misses the point. The point for us is that the two have got to work together.

“It doesn’t matter if in the shops sales are only 1% up, if you’re recording the sales elsewhere. We have got further than others in understanding that.”

Online sales are expected to account for half of John Lewis’ turnover in the next five to 10 years, said Street. “The exciting thing for us is we are still opening shops. We’re very confident we need both bricks and clicks together,” he said.

Street said John Lewis experienced a “big surge” in sales over Black Friday, and then again in the 10 days before Christmas, including December 23, which he described as “mega”. The retailer beat its all-time sales record on December 23 in its Oxford Street, Liverpool and Glasgow stores.

Street said Black Friday and the late surge are trends that are set to be repeated next Christmas.

“Black Friday will be even bigger next year,” he said. “Some retailers did really well exploiting Black Friday and we were obviously among them. Some retailers would say it took them by surprise but I think it will take nobody by surprise next year.

“This trend for very late purchasing will also grow. A couple of years ago customers wanted to make their online purchases early as they weren’t quite confident it was all going to work. But now there’s much more confidence in online generally so people are prepared to leave it later. The pattern, I think, will repeat itself.”

Street said John Lewis has had a good start to its clearance Sale after careful stock management over Christmas. “We think we’re going to come out of it with our stocks where we need them to be. The other really big thing was just how good that first day of clearance was on the 27th, the fact we held our nerve and did not discount our own branded products gave us a really good first day of clearance.”

Street said John Lewis performed strongly across all categories. “Last year we were even more dependent on electricals so I’m pleased that it’s more broadly based than last year,” he said.

He added that convenience would continue to be a big trend in 2014. “It’s very clear customers do their research in shops, they go to chat about it at home, and when they’re on their way into work the next morning they make their purchase.

“On Black Friday the peak trading was 8-9 in the morning. What that means is you have to configure your website to transact on a mobile phone. We’ve done lots of stuff this year on new apps, our new iPad app has just launched. You’ve got to make it specific to that device.”

He added: “We are planning for solid growth the coming year and we believe the economy is genuinely strengthening, not just in London. We’re going into the year very optimistic. I’m quietly optimistic about some underlying strengthening in the home furnishing area, which we’ve not seen for five or six years. So that’s another important thing for us.”

Street ruled out any imminent overseas store openings despite reports claiming the retailer was eyeing shops outside the UK.  “There has been no decision, we are not eyeing an overseas store. We will look at it eventually but have no plan yet,” he said.