The John Lewis Partnership has issued a trading update on its position during the coronavirus outbreak. While Waitrose has seen some benefit from increased demand for groceries, it is also seeing much higher costs. Meanwhile, the group warned that the John Lewis chain is facing a considerable decline in sales this year with moves underway to cut costs.
Waitrose has seen its sales grow 8% since the end of its last financial year (26 January) as customers stockpiled cupboard essentials at the start of the crisis. Sales have increased in both its shops and online, although the group said that operating costs had increased too, especially as it expanded its online delivery service to meet surging demand.
Waitrose has now increased its delivery capacity by 50%, which it highlighted puts it in a good position ahead of the ending of its contract with Ocado in September.
Meanwhile, short term trading at John Lewis has been affected by the closure of all 50 stores. Overall, sales are down 17% year-on-year since the middle of March, and down 7% year-on-year since 26 January.
However, the retailer has seen a significant spike in its online sales, which are up 84% year-on-year since the middle of March. Highest demand has been in areas linked to working and living at home like technology and food preparation but also in looking after and entertaining children and keeping fit. However, John Lewis highlighted that these are some of its less profitable lines.
Back in March, the John Lewis Partnership slashed its renowned staff bonus to its lowest level in 67 years after reporting a slump in annual profits.
Looking ahead, the group said its worst case scenario for this year assumes significant sales decline between April and June, and weak sales thereafter. It warned that annual sales could fall by up to 35% in John Lewis, around double the current level, while Waitrose might see a more modest decline of less than 5%.
Chairman Sharon White said: “This is a time of great uncertainty and volatility and the full year picture is impossible to predict. We are therefore looking at a range of different possible outcomes and how these might affect profits, sales and cash flow.”
The group stressed that it had considerable cash funds and liquidity to call on during the crisis. However, given the “unprecedented trading volatility”, it has prepared a range of actions that it is ready to take to secure the financial sustainability of the business.
It has already taken several steps, including lowering its planned stock intake for John Lewis and reducing operating costs such marketing spend by close to £100m.
It will also reduce its planned capital expenditure by over £200m, while negotiating rent relief with landlords and seeking extra flexibility with the banks.
Meanwhile, the group is furloughing more than 14,000 staff whose jobs are temporarily no longer required, and its management team and directors will be taking a 20% cut in pay, initially for three months.
The ‘Strategic Review’ of the business instigated by the group’s new Chairman in March will now be accelerated so that it is complete by the summer. “It will seek to take account of changes in consumer behaviour to come out of the pandemic, such as a more pronounced shift to online and a desire to shop in more sustainable ways,” said White.
In a statement to the group’s staff, she added: “The Partnership has been trading for nearly a century. It has survived a world war and bombings, economic crashes and crises. Thanks to you, we shall also come through COVID-19 too and emerge stronger.”
NAM Implications:
- How long before JLP have to acknowledge that splitting Waitrose and John Lewis…
- …will help to reassure all stakeholders…
- …before the market does it on their behalf…
