John Lewis loss tops £500m as it plans further store closures
The headline news may have been about John Lewis Partnership making a pre-tax loss of £517 million in the year to January 30. But on Thursday, the line in the firm’s results announcement that was more newsworthy was the one that said “we do not expect to reopen all our John Lewis shops at the end of lockdown”.
It didn’t name any stores and said it’s in talks with landlords with final decisions expected by the end of March. But reports have suggested a further eight stores could close after it shut eight last year.
Looking at its results, the firm didn’t talk about sales but the department stores-to-supermarkets retailer said the past year “has been one of the most challenging in the Partnership’s history”.
And that £517 million loss (after a £146 million pre-tax profit in the previous year) underlined that fact. It made a profit before tax and exception items of £131 million (up from £70 million), but it would have made a loss if not for the crisis support measures brought in to help businesses in the pandemic.
It has been criticised for keeping the business rates relief it received when other big firms have handed it back. But the scale of the loss makes this retention understandable. And it said it will accept the business rates relief made available from April to June, “but we will keep this under review”.
The pre-tax loss came as the company had to deal with substantial exceptional costs of £648 million, mainly the write-down in the value of John Lewis shops due to the shift online, as well as restructuring and redundancy costs.
In fact, John Lewis shops are now held on the balance sheet at almost half the value they were before the write-downs of the past two years. Pre-pandemic, £6 in every £10 spent online with John Lewis was driven by its shops. That’s now £3 in every £10. It will be interesting to see where that figure is at in a year’s time once stores reopen.
John Lewis added that it entered this year with its financial performance already challenged and is now “having to take very difficult decisions to return the business to a path of sufficient profit of £400 million by 2025/26”.
So what’s it doing to get there, apart from closing stores? Well, as mentioned, online is a much bigger focus and that makes sense as Johnlewis.com sales have risen 73% in the latest period. This year, online accounted for three-quarters of the brand’s sales, up from 40% before the crisis.
It has also been ramping up services online and said a Guinness World Record was broken with the largest ever virtual beauty event masterclass with Charlotte Tilbury.
And it has expanded Click & Collect that’s now available at over 900 locations, nearly 400 of which were added in nine weeks. Purchases from Boden and Sweaty Betty can also now be picked up through its network.
It has also added a raft of new fashion and beauty brands (with more planned).
Overall, the company’s five-year Partnership Plan aims to reduce costs and reinvest the proceeds in improved customer service and non-retail growth. With retail margins declining, it’s aiming that by 2030, 40% of profits will come from areas outside retail like financial services, housing and outdoor living.
It plans to spend £800 million in 2021/22 to support its turnaround, around 40% higher than recent years. The downside is that this should mean financial results are worse in the current year, although they should improve in later years.
Thos investments will include digital spend at a significantly higher level than recent years, updating major category propositions such as Home, new capacity at its John Lewis Magna Park distribution site to handle a higher volume of sales during Christmas, and restructuring to reduce costs.
It will also spend on improvements in its stores, despite the planned closures. It said that as spending shifts online “we want to ensure our stores reflect how customers want to shop - ‘right space, right place’. Our shops will always be important. They provide a sensory experience that online cannot, supported by the expert advice of Partners”.
It has “undertaken substantial research into how shopping habits vary in different parts of the country and between online and stores. Customers tell us they want to shop John Lewis closer to home in more convenient locations and they want our stores to be more enticing”.
It will reshape its store estate towards Destination Stores showcasing inspiring products, “displaying great design with more space given over to experiences and services that cannot be found anywhere else”.
But it will also have smaller service stores — new formats of smaller, more local shops with “the very best of John Lewis”.
And bringing the two brands closer together is key too. It’s testing John Lewis shopping areas in some Waitrose stores and “the early signs are positive”. If successful, it will roll out to a significant number of its 331 Waitrose shops. The plan is for all the general merchandise in Waitrose shops to be sourced from John Lewis.
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