The definition of a true crisis at John Lewis, one should remember, is a threat to the model of employee ownership. That happened in the late 1990s when rivals were running rings around the organisation and even the top brass at John Lewis seemed to lose faith in their chief point of difference. It is not today’s position.
Record profits were achieved as recently as 2017, so the current decline is from a high level. The first loss at the half-year stage, of £25.9m, is serious and embarrassing but, since even a no-deal Brexit can’t delay the arrival of Christmas, there will be a pre-tax profit at the full-year.
Indeed, if Yellowhammer hell is avoided, the full-year outcome may not be wildly short of last year’s group-wide £160m. IT charges are declining and interest costs are reducing as debt is repaid. Whatever happens, the partners will remain partners as far as the eye can see. The model is successful and the balance sheet is healthy.
All the same, a greater sense of urgency would help. Waitrose is stable and, aside from Brexit supply-chain worries, the main management challenge in food is overcoming the end of the Ocado deal. But the financial decline at the department stores looks horrible. Two years ago, their operating profits were £258m. This year, even if the second half beats last year, top-line profits from the department stores look set to land below £100m. On a two-year view, that’s a mighty fall for one side of the group.
Blame the general retail climate. Or the “never knowingly undersold” price promise that forces the store to match the discounts of wounded rivals such as House of Fraser and Debenhams. Or the inherent volatility in a high fixed-cost business. Yes, all are factors.
But one would also like to see John Lewis display more aggression. “Immersive experiences” for customers are fine but try rinsing the landlords. Some of their shopping centres would implode without John Lewis’ presence as anchor tenant.
Lease renegotiations are happening behind the scenes, apparently. OK, but hit hard – and then hit again. It’s the main game in retail-land, as Next and JD Sports can testify, and this is the moment to strike.
London Stock Exchange should reject Hong Kong’s takeover bid
Momentum is the most useful quality in a so-called bear-hug bid, which is a roughly accurate description of Hong Kong Exchanges and Clearing’s (HKEX) attempt to buy the London Stock Exchange. The bidder will know the LSE’s board won’t roll over without a struggle, so it has to hope for a slow submission.
The trouble is, it’s hard to spot any momentum currently. There was none in the stock market, which had its first opportunity to trade HKEX’s shares on Thursday. Result: a 3% fall. On the face of it, that might count as a decent outcome for the Hong Kong brigade. After all, three-quarters of its bid is in the form of shares so the value of the £32bn offer barely moved.
Unfortunately, the reason for the mild reaction is probably this: the market thinks the takeover won’t happen, so the price of HKEX did not require major adjustment. Investors, one suspects, think the regulatory and political hurdles are too high to clear.
You can’t blame them. Xavier Rolet, former chief executive of the LSE, pointed out one of the less obvious difficulties on the BBC. About 90% of US interest-rate swaps are cleared by a division of the LSE. Interest-rate swaps are a dull but very important corner of the financial world and the success of the City of London owes much to the fact that US authorities are happy to see so much dollar activity take place in the UK, albeit under the joint supervision of a US regulator.
Would the US be so understanding if the LSE’s clearing house was ultimately owned from Hong Kong, an administrative region of China? Derivatives clearing “would be of great concern to US regulators,” Christopher Giancarlo, former head of the US Commodity Futures Trading Commission, told Financial News on Thursday. That sounds ominous, especially as the White House will also have a view.
Given those risks – not to the mention the less-than-compelling offer terms – the LSE’s board must reject the offer.