John Lewis champions own-brand home goods amid H1 losses
The John Lewis Partnership reports a pre-tax loss of -£25.9m (compared to £0.8m profit last year) for H1 (ended 27th July 2019), despite enjoying profit at Waitrose & Partners. In John Lewis & Partners, operating losses before exceptionals and IFRS 16 [a new accounting standard for leases] increased by £42.5m to -£61.8m, reflecting lower sales in categories with more considered purchasing, cost inflation and higher IT costs.
Given the relative success of its own-brand lines, John Lewis is redesigning every part of its Home goods range, starting with the relaunch of upholstery. Having grown the size of its Home design team by +50% over the last 18 months, the retailer plans to launch 3000 new own-brand products this autumn.
“The re-drawing of the UK retail landscape continues apace,” comments Sir Charlie Mayfield, partner and chairman of the John Lewis Partnership. “While trading conditions have continued to be difficult, we have accelerated our differentiation strategy and significantly strengthened our balance sheet.”
Total net debts were reduced by £469.2m compared to July 2018, due to strong cash generation and tight cash management, as well as the decision to close the business’ final salary defined benefit pension scheme.
“We have historically made the majority of our profits in the second half of the year,” says Charlie. “However, should the UK leave the EU without a deal, we expect the effect to be significant and it will not be possible to mitigate that impact. In readiness, we have ensured our financial resilience and taken steps to increase our foreign currency hedging, to build stock where that is sensible, and to improve customs readiness.”
The retailer says it continues to invest in non-management staff pay, “well ahead” of the level of sales growth, and is developing its first John Lewis Service Academy (in line with its existing Waitrose model).
It also aims to create a differentiated business in home improvement. Next month, John Lewis will launch its first World of Design in its Peterborough shop, bringing its home stylist expertise together in one dedicated space at the heart of its Home departments. The retailer will explore how shops can become more meaningful in customers’ lives, as staff-led services and immersive experiences from both brands take centre stage on every floor in a new concept in Southampton from November.
Rasmus Houlind, ecommerce expert and Chartered Institute of Marketing (CIM) spokesperson comments: “John Lewis & Partners’ results reflect a price squeeze from department store retailers such as House of Fraser and Debenhams as they chase short-term earnings. But John Lewis continues to do everything right from a marketing perspective: building up its loyalty club; using owned rather than paid media to reach customers; increasing the sales of its own-label products. It’s also growing its share of online sales, while making the most of Waitrose’s greater local presence.
“In the long run, while its competitors’ brands are slowly diluted, John Lewis’ omnichannel approach and deep understanding of its customers will see it prevail. At the moment JL & P has the brand and product right. It’s just the price that is causing short-term pain.”