John Lewis has warned it could ditch the annual bonus for its 81,000 employees as it flagged another big fall in profits and announced the departure of its department store boss.
Paula Nickolds, who has been at the partnership for 25 years, is stepping down by mutual agreement next month before a previously announced management restructure. She has led the department store chain for three years, during which its profits have dived from more than £250m to potentially less than £50m this year.
Nickolds said she was leaving after “some reflection on the responsibilities of her proposed new role” under the new chairman, Dame Sharon White, who takes the helm in early February. Nickolds’ departure comes as Rob Collins, the boss of Waitrose, exits this month.
The retail group, which owns Waitrose supermarkets as well as its namesake department store chain, said it would consider next month whether to axe the bonus payment to staff for the first time in 67 years after sales fell by 1.8% over the key Christmas period.
While Waitrose’s performance held up, rising 0.4% at stores open for more than a year, sales at established John Lewis department stores slid by 2%. While Waitrose booked a near 17% rise in online grocery orders in the week before Christmas, the department store’s online sales rose just 1.4%.
The John Lewis chairman, Sir Charlie Mayfield, said he expected Waitrose annual profits to be broadly in line with last year but warned that department store profits would be “substantially down”. As a result, its said group profits would be “significantly lower” than the £160m reported last year.
The company said sales during the Black Friday discount period were up 10% on the equivalent period a year before but it then recorded “subdued demand” in the following weeks.
Mayfield admitted that profits had taken a hit as the department store had not cut costs as deeply as other retailers in the face of falling sales.
He said this was “in part to preserve brand reputation and position. We place a huge amount of store on that.”
Despite the expected profits dive and management exodus, Mayfield insisted he was not leaving a business in the midst of a crisis.
“We have come through tough times before on many many occasions. Although profits are down on the full year we will still be profitable,” he said.
Mayfield insisted the group’s finances were in the best state for 10 years, after reducing debts and cutting millions of pounds of costs, partly by rejigging its pension scheme. “For that to be happening in some of the most severe retail conditions in a generation I wouldn’t describe that as a low ebb,” he said.
He said he did not expect sales to continue to decline at the department store and this year was likely to mark a turning point after which profits would rise again.
“I certainly hope this is where profits bottom out,” he said. “This has been a time, in the last three or four years, of huge change, really putting [in] place the foundations for a period of renewal under Sharon’s leadership,” he said.
But the exit of Nickolds, Mayfield and Collins hands the group’s new chairman, who has no experience of the retail world, a tough starting point. She will also have to bed in a new management structure, intended to save £100m in costs, under which more than 70 senior team members have exited while others will be working across both John Lewis and Waitrose for the first time.
One of her first decisions will be whether to ditch the bonus for the first time since 1953. Last year John Lewis workers, who are known as partners because they jointly own the business, saw their payout cut to just 3% of their annual salary, down from 18% in 2011. Even that low bonus cost the business £44m.
Julie Palmer, a partner at Begbies Traynor, said it was “dark times” for the partnership.
“Once hailed as the model for the future, John Lewis is now becoming a harsh example of how fast the retail landscape changes,” she said. “2020 will be a crucial year and its new management must get the business back on track, but in John Lewis’s current condition it might not be enough to patch up wounds. Sharon White and a new team below her may have to perform retail surgery.”
The John Lewis Partnership figures were released as the British Retail Consortium trade body said last year was the worst on record for British retail, with sales falling for the first time in 24 years as a dire performance on the high street dragged down the industry.
Total sales slipped by 0.1% in 2019, according to the BRC and advisory firm KPMG, the lowest since they began monitoring the sector in 1995.