John Lewis’ results showed that today in retail you need to run to have the slightest hope of even standing still, never mind advancing.
Despite its profits slump, the retailer is actually moving pretty fast – notably at its department stores business – but the finishing line is still some distance away.
A couple of stats highlight how tough life is. Like many retailers, John Lewis is focusing on productivity.
It reported that gross sales per partner increased 6.5% to £191,300 last year. That’s great.
However, profit per partner slid £1,000 to £4,800. That’s frightening.
The fall in profit reflected a decline in gross margin, mainly at grocery arm Waitrose. The margin reset accounted for about 80% of the upmarket grocer’s operating profit slump.
But that same pincer movement is being felt across retail, in general merchandise as well as food, while retailers also confront rising costs amid an ongoing channel shift.
“The sales productivity number shows that people, while a massive retail cost, can still make a massive contribution”
In John Lewis’ department store division – and, indeed, at Partnership level – the strategic response looks right.
The sales productivity number shows that people, while a massive retail cost, can still make a massive contribution. The Partnership expects “greater changes in the workplace in the years to come from automation and other trends”.
But although it has cut jobs, the retailer is focused on developing people that it retains and recruits, notably through “embracing apprenticeships as the primary focus for development”.
That makes sense if for no other reason than, as retailers fork out for the apprenticeship levy, they might as well ensure they get as much back in return as possible.
John Lewis’ emphasis on technology is also correct.
Because of the opportunities it brings both for efficiencies and to better cater for changing shopping habits as consumers hop between their digital devices and bricks-and-mortar stores, blurring boundaries and making it ever more important for retailers to find that holy grail of a ‘seamless experience’ – and make money doing so.
In the end, though, consumers will only buy if they like the product on offer, so that too is a sensible priority for John Lewis. At the department stores, own-brand womenswear was a stand-out performer, up 14.9%.
The objective is for 50% of what is sold in the department stores to be own-brand or exclusive which, as well as being appealing to customers so long as the product is right, brings business benefits.
Own-brand typically generates higher margin, you can’t get it on Amazon and it provides a distinct reason to visit a retailer’s shop.
All the changes at John Lewis require investment, and that can be problematic for retailers answerable to public shareholders.
However, perhaps they could turn limitation to advantage?
At last week’s Retail Week Live, Marks & Spencer chief executive Steve Rowe spoke about how its food home shopping trial is “held together by Sellotape” at the back end. For some, that was symptomatic of M&S being behind the curve on technology.
However, you could as easily argue that it’s an example of being agile within existing limitations and, if the experiment works, those limitations can then be addressed as the operation is scaled up.
As consumers’ disposable spending power – and therefore retailers’ performance – remain under pressure, finding smarter ways of doing things will only become more important.
Retail sector council deserves support
Retailers frequently complain that their voices are not sufficiently heard in the corridors of power, so the creation by retail minister Andrew Griffiths of a sector council is welcome.
The council’s membership is quite diverse, representing retailers big and small, bricks and clicks, labour and management.
Griffiths’ told Retail Week Live that the council would not be a “talking shop” and the ambition is to make a practical difference to retailers.
“It’s time for the retail sector and the Government to work together to understand the issues, and come up with solutions to tackle productivity, the skills shortage and the challenges of new technology,” he said.
“The Government can’t solve those things for you but, working together with you as an industry, we have a better chance.”
The proof of the pudding will be in the eating, but retailers should support the initiative in good faith.