As widely expected, the John Lewis Partnership has slashed its renowned staff bonus to its lowest level in 67 years after reporting a 23% fall in annual profits.
Headline pre-tax profits came in £123m, which group said was weaker than expected after a relatively solid performance from Waitrose was offset by a slump in the John Lewis department stores unit. Group revenues declined 1.6% to £10.15bn.
At Waitrose, operating profits before exceptionals and IFRS 16 grew by £10m to £213m. However, after excluding property profits, the figure was down £6m, with an improvement in gross margins and better operational performance being offset by cost inflation. Store closures contributed to total revenues at Waitrose slipping 0.9% to £6.37bn, although like-for-likes were down 0.2%.
At John Lewis, operating profits plummeted £75m to £40m, driven by weaker sales in its Home and Electricals departments. Heavy IT investment and increased pay were also only partly offset by productivity improvements. Total revenues at John Lewis were down 2.7% to £3.78bn with like-for-likes falling 1.8%.
As a result of the poor returns, the partnership has reduced the bonus for its 80,000 staff to just 2%. It is the seventh consecutive year that the bonus has been cut and marks its lowest since 1953 when staff received no award.
Sharon White, the new chairman of the partnership, confirmed today that she was launching a strategic review which would focus on strengthening its core retail business and developing new services outside retail.
As expected, she flagged that more store closures are likely, including John Lewis outlets. White said: “As part of this we will also look at ‘right-sizing’ our store estate across both brands, through a combination of new formats and new locations; repurposing and space reductions of existing stores; and closures, where necessary.”
The company has been closing underperforming Waitrose stores in the last few years. The group announced today that a further three outlets will be shut later this year – Helensburgh in Scotland, Four Oaks in Sutton Coldfield and Waterlooville in Hampshire.
White said: “We need to reverse our profit decline and return to growth so that we can invest more in our customers and in our Partners. This will require a transformation in how we operate as a Partnership and could take three to five years to show results.
“We are stepping into a vital new phase for the Partnership and I have no doubt we will come through it stronger.”
NAM Implications:
- Key will be the impact on partner morale of the gradual reduction in bonus from 20% in 2008 to the latest 2%…
- …and how this eventually impacts the aisle, and thus the shoppers.
