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John Lewis Skips Profits to Help Staff

Despite growing its customer ranks, John Lewis Partnership posted a first half loss for the six months ended in August as it faced fallout from inflation.

In a Nutshell: “Inflation has increased our costs, which means we have to do more to meet our original efficiency targets because we have not passed on all of the increased costs to our customers,” Sharon White, chairman of John Lewis Partnership, said last week.

The company decided against awarding itself a profit to instead help out staff, customers, communities and suppliers. “We are responding to the cost of living crisis by supporting those who need it and by stepping up our efficiency programme,” White said.

The company doubled financial assistance to staff to 800,000 pounds ($917,746), and said it will spend 45 million pounds ($51.6 million) in further assistance in addition to the pay increases and bonuses. The additional assistance will be in the form of free food at work for 14 weeks over winter, and one-time cost of living payments equal to 500 pounds ($573.59) for full-time associates, with part-timers getting a pro-rated amount. John Lewis will increase the entry level pay for associates by 4 percent, which will increase its expenses by 10 million pounds ($11.5 million) in the second half. The company’s also freezing prices and cutting school uniform by 95 percent. White said customers also benefited from 46 million pounds ($52.8 million) through loyalty discounts at Waitrose, its grocery chain.

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White said the company is adapting its five-year strategic plan to adjust for the cost of living crisis. Lean Simple Fast, for example, offers a simplified way to quickly restock returns. The John Lewis banner also relaunched its “All Life’s Moments” line alongside a refresh of its core John Lewis & Partners mid-tier brand. In addition, the retailer will trial a new John Lewis concept format in early 2023.

For the half, consumers are doing more in-store spending versus last year. Online remains elevated compared with pre-pandemic levels, although the shift to digital “is permanent.” Consumers have moved their discretionary purchases from high-margin, big-ticket household items to spending at restaurants.

There’s also evidence that inflation is changing how consumers shop. The company-owned value brand Anyday saw sales rise 28 percent from year-ago levels for the half, while energy saving items including air fryers and smart thermostats also drew high demand.

Waitrose saw comparable sales dip 5 percent to 3.6 billion pounds ($4.1 billion). Transactions were up 14 percent year-on-year, but basket sizes were “smaller by nearly a fifth.” Online shopping accounted for 15 percent, down from 20 percent during the pandemic’s peak.

Sales trends were similar to other retail data in the U.K. Springboard said foot traffic strengthened in August to up 8.6 percent from a year ago, boosted by a heat wave that likely encouraged staycations. But the footfall research firm also said that there could be declines ahead in “anticipation of austerity due to the impending energy crunch set to hit U.K. households by October.”

Retail sales in August excluding automotive fuel rose 3.7 percent, but volumes were down 5 percent due to 10 percent inflation. “Consumers cut back on major purchases… as falling real incomes made many people think twice. Retailers are working hard to keep prices down for their customers, despite their own costs rising substantially—including energy, imports, shipping and haulage,” Helen Dickinson, British Retail Consortium (BRC) CEO, said. The BRC has been urging the government to cut business rates to ease the tax burdens on retailers.

Net Sales: Sales rose 3 percent on a comparable basis for the half to 2.1 billion pounds ($2.41 billion), helped by a return to in-store shopping.

“The share of sales in shops has averaged 41 percent for the half year, compared to 26 percent for the year-ago period,” White said, adding that city center stores saw strong gains as consumers returned to working at their offices.

The best-performing category was fashion, which grew 25 percent on strong influence from holiday wear, travel and vacation breaks. Home goods, by contrast, declined from a year ago.

Earnings: The company posted a loss before tax and exceptional items of 92 million pounds ($105.5 million), versus a profit of 69 million pounds ($79.2 million) a year ago.

White said that it isn’t unusual to post a loss in the first half, which it has done in three of the last four years because sales are “heavily skewed to Christmas, with most of our profits coming in the last quarter of the year.”

Looking ahead, she said that a “successful Christmas is key for the business given the first half. We will need a substantial strengthening of performance, beyond what we usually achieve in the second half, to generate sufficient profit to share [bonus with staff]. Much will depend on the wider economic outlook and consumer sentiment.”

CEO’s Take: “The outlook is uniquely uncertain. We believe we are well placed to navigate the current inflationary headwinds,” White said. “Time and again we have been tested…We have always come through—and stronger—by being mindful of the challenges but also open to new opportunities. We will do so again.”