Is John Lewis at risk of becoming a ‘middle-class Argos’?

The business already faced a turnaround challenge when Dame Sharon White took the helm as chair last year, but the Covid-19 pandemic has accelerated the pace of change John Lewis department stores must navigate.

Forced like other retailers deemed ‘non-essential’ to shut up shop during successive lockdowns, John Lewis was nevertheless able to reap the benefits of an online operation it had invested in and built up over years.

The online growth was welcome, but the consumer switch into ecommerce is likely to be permanent. That makes even more pressing the need to rebalance the business and work out exactly what part stores and digital will play in future. 

White and John Lewis executive director Pippa Wicks set out some of their thinking on both with the retailer’s results.

Online has been a great success for John Lewis. Sales through Johnlewis.com last year climbed 73% to account for 75% of the total – a leap from 40% before the pandemic hit.

In contrast to some retailers, in the second half online growth “compensated for the loss of store sales more than we had expected”.

 

The product mix during lockdown – such as higher demand for tech products – and an increase in fulfilment costs hit the retailer’s overall margin. However, the online business is profitable.

The strong showing of online was in contrast to that in-store. Much of the Partnership’s £517m full-year loss was attributed to a write-down in the value of John Lewis shops “owing to the pronounced shift to online”.

Before the pandemic, John Lewis calculated that £6 in every £10 spent online was “driven by our shops”. That ratio has since halved to £3.

That may not be surprising in the wake of a succession of lockdowns, especially as the retailer also stopped click and collect from its branches – though not from its sister chain Waitrose – earlier this year. 

However, it comes on top of challenges that department stores previously faced and John Lewis noted that, while there is uncertainty over the extent to which changes to consumer habits will last, “we are expecting much of the shift online to be permanent and are adapting the business accordingly”.

Following eight store closures already, more are anticipated. The exact number will not be disclosed until the end of March but could amount to the same again.

With so much of its business set to take place online, both now and going forward, how can John Lewis ensure that its traditional differentiators – in particular, service – are not lost in a digital environment that can often be very functional and transactional? 

As implants of the department store are installed in “a significant number” of Waitrose’s 331 branches, does John Lewis put itself at risk of becoming an Argos for the middle classes?

“We will absolutely not be Argos for the middle classes,” insists Wicks. She reels off the ways in which John Lewis provides high standards of service remotely, such as customers’ ability to speak to specialist advisers when they call, the “huge success” of virtual services during the coronavirus outbreak, such as online classes and advice, and an increase in customer service satisfaction. The retailer is also launching a School of Service to ramp-up the quality of experience in-store.

“Shopping habits have changed irreversibly. Customers now want more local, convenient and curated stores”

Dame Sharon White, John Lewis 

In fact, although Waitrose will become a more important point-of-sale for John Lewis products, and some of the existing 42 department stores will not reopen in April when lockdown is expected to ease, the retailer has plans to open space through new store models.

White says: “Our judgement is that shopping habits have changed irreversibly. Customers now want more local, convenient and curated stores.”

She believes John Lewis needs the “right blend of online and stores for how customers want to shop in future”. Equally, she believes customers appreciate the expertise of the retailer’s “wonderful, impartial partners”.

The new shops are designed to play to the strengths of bricks and mortar, as well as complement online.

The retailer’s reshaping of its portfolio will include branches categorised as “destination stores” and smaller “service stores”.

 

The former will be about “showcasing our inspiring products – displaying great design, with more space given over to experiences and services that cannot be found anywhere else”. 

The latter will be more locally based, able to cater for habits that may outlast the pandemic, such as increased working from home, as will more third-party click-and-collect points, such as those in Co-op stores, to further bolster local convenience. 

Increased investment in digital and new thinking on retail space form part of other big changes at the Partnership as White seeks to make it as relevant as possible.

Her strategy includes, for instance, making 40% of profits from services – financial services, in particular – rather than traditional retail by 2030.

Following one of the “most challenging” years the Partnership has ever experienced, White maintains that there is reason to be optimistic.

She wrote to colleagues: “Retail is changing fast around us. And the Partnership is adapting just as fast. What won’t change are the principles and values in which the Partnership is rooted.

“We have withstood our toughest test and emerged stronger. The strength of the Partnership has seen us successfully navigate the pandemic and will see us to a successful future.”

How much resemblance the new John Lewis will bear to the John Lewis of old is another question.