Staff working for Waitrose and John Lewis will not get their renowned bonus this year after the group recorded worse-than-expected losses following weak sales performance amid the cost of living crisis.
The John Lewis Partnership made an underlying pre-tax loss of £78m over the 12 months to 28 January, compared with £181m profit the year before. Adding in exceptional costs – the biggest one being a write down in the value of Waitrose stores – the group’s loss was £234m on sales down by 2% to £12.25bn.
Sharon White, the Chairman of the Partnership, noted that inflation has had a big impact on business and sent its costs soaring – up almost £180m on last year. She said it was working to drive out costs by negotiating better deals with suppliers and simplifying ranges across both its retail brands.
However, she warned of more job losses and apologised to staff for not paying an annual bonus for only the second time since 1953 due to “a tough set of results”.
The figures confirmed that Waitrose is struggling, with White admitting that cash-strapped shoppers are shifting some of their grocery spending to the discounters. The upmarket supermarket chain’s total sales fell 3% to £7.31bn, with like-for-likes also down 3% as the business lost market share. The group noted that despite customer numbers increasing by 7% in the year, sales volumes were down 10% as people bought less on each visit.
Operating profits at Waitrose slid 12% to £894m, with the group blaming “challenging trading dynamics, inflation pressure and one-off cost inefficiencies, partially offset by cost savings and profit growth from new propositions”.
Performance at the John Lewis department stores was slightly more robust, with total sales edging up 0.2% to £4.94bn and like-for-like growth of 0.3%. Strong demand in fashion and beauty helped offset a fall in sales of home technology and larger furniture.
However, operating profits at John Lewis fell by 11% to £676m due to “trading dynamics and inflation, partially offset by cost savings”.
The group said it was responding to its difficulties by tripling its target for cost savings to £900m by January 2026. “The mantra for the year is cost out, margins up and customer focus,” White said, adding: “As we need to become more efficient and productive, that will have an impact on our number of partners.”
When questioned about specific plans around job losses, White said: “There are no numbers”.
The figures come a day after the Partnership appointed the former Hovis boss Nish Kankiwala as its first group Chief Executive to support White in her battle to revive the retailer’s fortunes.
Commenting on the results, Susannah Streeter, head of money and markets at the broker Hargreaves Lansdown, said: “The cost of living crisis has been blowing a chill wind through the retail sector but has whipped up a hurricane of problems for John Lewis.
“Although the high street has shown pockets of resilience among retailers offering value-for-money essentials, the nice-to-have items, which are John Lewis’ bread and butter have been dropping out of shopping baskets fast. Waitrose, in particular, has been sideswiped by the trend, with essentials rather than treats a priority, shoppers have been putting less in their trolleys and decamping to cheaper stores.”
Meanwhile, retail analyst Catherine Shuttleworth noted that shoppers were “cherrypicking what they buy at Waitrose”.
The decline in Waitrose sales volumes is significant she said: “Volumes are the life-blood of supermarket businesses – the more you sell, the better the prices you can offer to shoppers.
“Food inflation continues to be a massive issue, so it’s unlikely that food shopper behaviour will change anytime soon.”
Josh Holmes, Senior Consultant at Retail Economics, added: “Prioritising profitability and shoring up balance sheets is understandable in the current inflationary environment, but the retailer must ensure that it doesn’t lose sight of what made them great in the first place – quality, customer service, and an aspirational brand image.
“Putting cost-cutting at the forefront of the company agenda could undermine these values, and risks losing further ground to competitors that have been quicker to invest in their stores, partnerships, and omnichannel propositions.”
NAM Implications:
- Despite warning signals over the past few years, missing the bonus will be a motivational blow to partners.
- (can mean that some of the good guys leave…)
- Having to write down the value of some stores will not help.
- In terms of negotiating better deals with suppliers…
- So cost reduction may have to be confined to internal measures.
- Meanwhile, shoppers are buying more cautiously, taking up some of the value offerings and shopping around…
- …as Waitrose original core offering:
- quality, customer service, and an aspirational brand image
- i.e. ‘full & plenty’
- …become less obvious in store…
- …in an economic environment that looks like having a 10-year life-span.
