John Lewis stores' influence on online sales wanes, says White

The John Lewis Partnership (JLP) reported a significant loss for the first half of its financial year today (17 September), but its chair, Sharon White, has explained some intriguing new shopping dynamics influencing profitability.

Loss before tax and exceptional items in the six months to 25 July 2020 was £55 million, but when exceptional items – including store closures, redundancies and other restructuring, which all took place during the period – is taken into account the pre-tax loss was £580 million.

In a letter to staff, White said the annual staff bonus based on company profit would be withheld at the end of this financial year and she detailed some structural retail shifts playing a part in the partnership’s results and new strategy.

Although overall group sales were a touch higher than last year – up by 1% year on year to £5.56 billion – shoppers spent more on less profitable lines such as laptops and loo rolls.

White said “homeworking has had a big impact on what people are buying”, with TVs and tablets popular, and trousers and trainers less so. Online now accounts for more than 60% of sales, compared to 40% before the pandemic, and this is making the retailer think in more detail about the value of its store estate.

At John Lewis, online sales were up by 73%, which helped to offset the impact of coronavirus-enforced shop closures. However, there was still a 10% reduction in overall sales, to £1.86 billion.

Before the crisis, White said John Lewis felt shops influenced £6 of every £10 spent online but that figure is now estimated to be around £3.

“This has the effect of reducing the book value of John Lewis shops by about £470 million, known as an ‘impairment’,” she explained.

“This is a technical adjustment in our accounts and has no impact on our underlying profits or cash in the bank. There is some judgement here. If shops drove 10% more online sales in future, the impairment would be around £400 million; 10% less and it would be around £570 million.” 

A new strategy is set to be announced in the coming months, and the future plans for its store estate will be central to the detail. Eight John Lewis stores did not reopen after the Covid-19 lockdown between March and June, and JLP announced yesterday three Waitrose stores – at Ipswich Corn Exchange, Caldicot and Shrewsbury – will close this year, while Waitrose Wolverhampton will be sold to Tesco.

At Waitrose, JLP’s supermarket chain, like-for-like sales were up almost 10% on last year, totalling £3.7 billion. White said the grocer is now delivering around 170,000 weekly orders, up from around 60,000 before the pandemic, and the average basket size is four times bigger for home deliveries than it is for in-store orders. 

“The pandemic has brought forward changes in consumer shopping habits which might have taken five years into five months,” White added.

“Both brands entered the crisis with strong and established online businesses and in the case of Waitrose, plans for expansion well under way in preparation for the end of the relationship with Ocado. Our digital businesses, powered by partners [staff], have been key to underpinning our first half performance.”