Five reasons why John Lewis and Waitrose are having a tough year

Financial woes, cost of living crisis and tougher competition are among problems that have led to expected second ever full-year loss

It is tough times at the checkout of John Lewis and its sister chain, Waitrose, as the staff-owned retail group is expected to report its second ever full-year loss later this month.

The retailer is parting ways with the head of its department store chain and the celebrity chef Heston Blumenthal, who cooked up orange-filled Christmas puddings and other eccentric treats for Waitrose. Things have got so sticky even the staff golf course is for the chop.

So what has gone wrong for middle England’s favourite retail group? Have its fans switched to Aldi or been tempted away by a resurgent Marks & Spencer?

1 Financial woes

John Lewis Partnership is expected to report an annual pre-tax loss before one-offs of about £50m, compared with a profit of £181m last year, largely owing to the difficulties at its supermarkets.

One-offs such as write-downs on the value of some of its supermarkets and head office restructuring, are expected to add £100m to losses, according to the independent retail analyst Nick Bubb.

He predicts sales for the group will fall slightly to £10.6bn from £10.8bn a year ago, hit by a slide at Waitrose, which has been losing market share since September 2021.

The partnership has talked about efforts to keep costs down, laying off thousands of staff at head office in recent years, even turning down lights and heating to save money. It is understood that investments in stores has been put on hold in recent months.

However, the group still carries heavier costs than rivals, not least from its array of staff benefits such as hotels, sailing club yachts, and the soon to be sold golf course in Maidenhead, Berkshire.

The partnership had £1.4bn of debt at its last financial year end, including leases and pension obligations, against turnover of almost £11bn but £200m of that was due to be repaid late last year and £300m must be refinanced or paid down by 2025.

The group is a partnership, which means it is owned by its employees. So it cannot issue new shares to the public to raise money. With debt markets tight, the partnership is heavily reliant on its cash resources to invest during tricky times.

2 Cost of living crunch

With John Lewis and Waitrose at the more expensive end of the high street, the stores have had a tough year as inflation means spare cash for shopping is in short supply.

Waitrose’s sales have been falling as as its customers try out discount stores such as Aldi and Lidl.

John Lewis golf club in Cookham, Berkshire
John Lewis’s golf club in Cookham, Berkshire, is up for sale to save costs. Photograph: Maureen McLean/REX/Shutterstock

During past economic crises, Waitrose customers switched away from dining out to buying its ready-meals. This time, those with the spare cash have been keen to spend it on nights out after the long period of social exclusion.

Waitrose’s Essentials budget range, introduced during the credit crunch in 2009, is designed to help the chain hold on to more price-conscious shoppers. The retailer only recently upped advertising of Essentials alongside £100m of price cuts. Some analysts say Waitrose has moved too slowly to adapt and could have lost shoppers to rivals.

James Bailey, the boss of Waitrose, says: “Of all the things customers want us to spend money on, price is not in the top three or four. However, all customers are feeling the pinch.” He suggests that price cuts last year may not have made much difference to shoppers but “now is a great time”.

In an attempt to cut costs, the supermarket also trimmed back the benefits of its loyalty card, ditching free coffee in 2020 and newspapers last year, but was recently forced to bring back the hot drinks to help keep shoppers on side.

The department stores were ready for the cost of living crisis, having introduced the Anyday budget range in 2021. Sales have gone well – particularly on fashion – and the range has attracted younger shoppers. However, overall sales growth at the department store is expected to be low: pricey items such as technology, beds and sofas have been affected by weak consumer confidence.

3 Online step back

John Lewis has proved a huge success online, with digital sales accounting for 60% of the department store’s sales at the half year. However, click-based trade is slowing after the pandemic boom. Half-year sales at the department stores rose just 3% despite underlying price inflation flattering the numbers. The rising costs of deliveries and processing returns is likely to be biting into profits.

At Waitrose all of the sales decline over the past year is understood to have come online, which now accounts for just over 12% of sales, down from a peak of 15%, as shoppers have changed their habits now that fears of Covid-19 infection have subsided.

4 Tougher competition

John Lewis’s rivals have stepped up a gear.

On food, Marks & Spencer has cut prices on essentials and broadened its ranges to appeal to a more family audience. Its tie-up with Ocado may have struggled, but M&S replacing Waitrose as the online specialist’s partner generated lots of publicity and meant new competition online.

On clothing too, M&S seems to have regained its mojo, benefiting from a general switch to longer lasting and more formal clothing, and tie-ups with other brands.

That’s meant more competition for middle-aged, middle-class shoppers for John Lewis.

On homewares, Dunelm and Ikea have been gunning for the John Lewis market. Ikea’s move on to London’s Oxford Street later this year will only up the ante after it invested heavily in online.

Dunelm, meanwhile, has been opening stores and is keen on price, at a time when that matters more to shoppers.

5 Stalled strategy

With department stores challenged by the rise of online shopping and cheaper rivals to Waitrose rapidly opening stores where will the group find growth?

Small stores – for both Waitrose and John Lewis – have been talked about as the potential future.

Bailey says “the biggest growth opportunity is convenience stores” but openings have been held up by a lull in investment in recent months.

With the sudden exit of the department store boss Pippa Wicks this week, the architect of smaller John Lewis outlets, it’s not clear if this plan is still on the cards. More concessions in Waitrose are a possible way forward.

Sharon White, the group’s chair, has flagged up build-to-let flats above Waitrose stores and other property as a potential future revenue stream. The group struck a £500m deal with the investment firm Abrdn to build 1,000 residential rental homes, on three sites. However, some of these sites, such as Ealing, are already being challenged by local people and even the council, suggesting this may not be an easy route to success.

Waitrose is looking for new routes to growth via partnerships that open up access to new customers, and has already joined forces with the food courier Deliveroo and Dobbies garden centres, but this seems small beer.


Sarah Butler

The GuardianTramp

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