Bellwether retailer the John Lewis Partnership, which rarely puts a foot wrong, appears to have stumbled over falling profits.
Or at least that’s the message some took from last week’s interims, when its profits plunged.
But if the numbers looked scary, it was perhaps the accompanying commentary that might keep retailers awake at night.
“Delivering value for customers, maintaining a motivated workforce of partners and creating an infrastructure to sustain success should keep John Lewis on form, despite the profit pain and torrid outlook”
Partnership chairman Sir Charlie Mayfield talked of the need to adapt to “far-reaching changes taking place in society, in retail and in the workplace that have much greater implications”.
He went on: “Our commitment to competitive pricing, excellent service, maintaining pay differentials and investing for the long-term have held back profits. We expect these pressures to continue through this year and next.”
The message was clear: the changes that have convulsed retail show no signs of abating. But John Lewis has effectively thrown down a gauntlet.
Although costs are rising, John Lewis reaffirmed its commitment to being never knowingly undersold.
A juggling act
As the living wage kicks in, the Partnership is bearing an additional £30m cost than is necessary as it seeks to create “better jobs” – but job numbers will decline over time and greater productivity demanded.
And as shopping habits change, the retailer continues to invest in critical capabilities such as IT and distribution.
Delivering value for customers, maintaining a motivated workforce of partners and creating an infrastructure to sustain success should keep John Lewis on form, despite the profit pain and torrid outlook.
Not all retailers have the freedom to invest that John Lewis has as a result of its unique model. However, they will have to adapt to the same unsettling conditions.
That will demand even more business rigour, imagination – and some brave decisions. John Lewis is unlikely to be the last to have to sacrifice some profitability to be fit for the future.
Race for space continues at Next
While many retailers are grappling with the problem of excess space, Next is a notable exception.
The retailer aims to increase trading space this year by 350,000 sq ft to 8m sq ft.
As Next boss Lord Wolfson put it when he delivered interim results last week, that “may seem counterintuitive”.
However, he remains of the view that “taking new space is one of the few ways to mitigate losses from negative like-for-like sales”.
It succeeds because of rigorous profitability and investment payback measures over the lifetime of leases.
The approach has worked well over the years. But, as consumer habits change, Wolfson is also wise to have made the Directory home shopping business a big focus for improvement.