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Published on July 30th, 2020 | by The GC Team

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Profits challenge for John Lewis but “green shoots” on the horizon

The John Lewis Partnership today said profits this year and next likely to be challenged but a strategic review of the business is making good progress.

In a letter to employees, Chairman Sharon White said the company will become “digital first” as customers increasingly shop online. “Shops will always be crucial to the brand but they will be in support of online.”

With customers shopping in very different ways, the young in particular, and the pandemic accelerating the importance of digital, John Lewis is expected to be a 60% online retailer, from 40% pre-Covid-19, and Waitrose to rise above 20%, from 5%.

Over the next five years the retailer expects to rebalance its shop estate to ensure it has the right space in the right locations where people want to shop. “John Lewis Home will be available in Waitrose” and “we will get more experimental with store formats.”  

The company is also to review its ‘Never Knowingly Undersold’ price promise, which became a millstone around its neck some years ago as retail underwent challenging conditions, leading to an unprecedented level of price-matching as other retailers discounted heavily.

“As you all know, these are testing times, with profits this year and next likely to be challenged,” said White. “But the beauty of being a Partnership is that we are able to take a long-term view.”

The company is still targeting at least £100 million of savings in head office costs and has reduced the number of senior managers by a third. It is also drawing on new technology and expertise from outside suppliers for its Tech & Change transformation and expanding into more services as retail profit margins are under pressure.

A number of ideas for further development in services include growth in the retailer’s financial services business, and private rented housing: “As we repurpose and potentially reduce our shop estate, we want to put excess space to good social use,” White told Partners. “We are exploring with third parties the concept of new mixed-use affordable housing.”

Rental/Resale/Recycle is another growing priority. Options in this area include creating a market-leading channel for product rentals or building a marketplace to sell used products.

The strategic review should see “green shoots” in the business’s performance over the next 9-12 months and profits recovering over the next three to five years.

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