Saturday, May 8, 2021

John Lewis treads a fine line between staying special and staying alive | Business

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John Lewis is expected to lay bare the extent of the damage it has suffered during the pandemic on Thursday, with its first annual loss and confirmation of plans to close more stores.

The numbers will be examined carefully. The staff-owned group, which also owns Waitrose, is seen as a bellwether for the high street and these will be the first results for which outsiders don’t already have a clear indication of recent trading. This is because, in January 2020, John Lewis canned its weekly sales updates, which up till then had been required reading for rivals and analysts.

Waitrose’s performance is likely to be steady, but the picture for the department stores will be grim. John Lewis booked a £470m writedown in September, and online sales will not have entirely counteracted many weeks of enforced store closures. Instead of cheering staff welcoming their annual bonus, picture furloughed workers comforting each other online because John Lewis has scrapped its annual employee pay-out for the first time in 67 years.

It’s a painful anniversary for new boss Sharon White, who clocked in just before the pandemic. Under her leadership, the group has taken some tough decisions: closing eight department stores and several supermarkets, and cutting more than 1,500 head office jobs.

On Thursday, White is likely to highlight the costs of doing business in a pandemic, amid outcry at the group’s refusal to repay the government’s business rates relief on its supermarkets; the major grocers paid back the benefit after food sales boomed in the pandemic.

To underline its pain, John Lewis will point out that it is discussing with landlords the closure of up to eight more department stores. The stores will not be named this week, and plans may be tweaked depending on how discussions go, but a smaller chain, selling more online, is assured.

With lockdowns showing just how many shoppers are happy to consult on fashion, home styling or nursery kit from their sofa via phone or video conference, the future of the physical department store has never looked so uncertain. The fall of Debenhams and Dorset-based Beales, and the retrenchment of House of Fraser, show how bleak the outlook is.

It may seem wrong for White to make such bold decisions at a time when behaviour has shifted so radically. Why get rid of stores when major rivals are in rapid retreat, landlords have never been more open to slashing rents, and local authorities are willing to help out in order to keep their high streets alive?

Patrick O’Brien at retail analyst GlobalData said John Lewis did not need to wait and see how shoppers’ attitudes had changed to know that the economics no longer added up. But he suggests that a physical withdrawal from town centres might make it more difficult for John Lewis to retain its point of difference – superior customer service backed by staff ownership of the business.

“John Lewis’s price premium is tied up in its premium store experience,” said O’Brien, “and once that is taken away and two-thirds of the business is online, I wonder whether it can maintain its differentiation.”

A shift away from its “never knowingly undersold” pledge (details expected later this year), more outsourcing of customer services, the loss of the staff bonus, and now store closures … there is a risk that John Lewis may begin to feel less “special”, and more like just another retailer.

But as well as ensuring that the cherished high street brand remains special, White’s challenge is to ensure it remains in existence.

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