John Lewis, stalwart of the UK high street and retail role model, shocked last week with their announcement of a 99% drop in profits to £1.2 million, across the partnership (John Lewis and Waitrose). With a strong brand and loyal customers the sharp fall in profits was mainly attributed to honouring its “Never Knowingly Undersold” price promise, which caused huge problems as they matched their competitors in a discounting frenzy.
Chairman of John Lewis Partnership, Sir Charlie Mayfield, said that the stores' profit margins had been squeezed in "what has been the most promotional market we've seen in almost a decade". Good news for bargain hunting consumers, not so good for John Lewis profits, or their ‘partners’.
But what now? Will John Lewis suffer the same fate as other department store chains such as, House of Fraser? Will they revoke their famous price promise? Or will the discounting frenzy on the high street end?
Will they suffer the same fate as other department store chains, such as, House of Fraser?
I don’t think so because John Lewis has;
Great Customer Service and Loyal Customers:
Even if John Lewis lost one of its differentiating factors - its price promise - it would still have its revered reputation for delivering great customer service and a loyal customer base.
Strong Online Offering
Compared to other department stores John Lewis have been an early adopter of online channels - nowadays 40% of their sales are online.
Investment and Focus on Own Label Lines
John Lewis have a stated ambition to create a £500m own-brand fashion business and recently launched their largest ever own brand - the womenswear line John Lewis & Partners - to compliment their other, already successful, own label stand-alone brands Kin, AND/OR and modern rarity.
Bricks and Mortar
John Lewis have 50 stores throughout the UK - a significant high street presence but not as cumbersome a bricks and mortar legacy as other department store chains. John Lewis have also invested more into their high street stores ensuring they remain fit for purpose unlike many other heritage department store buildings.
Will John Lewis revoke their famous price promise?
No, John Lewis have confirmed that they won’t be changing their Never Knowingly Undersold price promise and that it remains at the very heart of their business. That’s not to say that John Lewis haven’t tried to mitigate against some of the risks associated with a price promise.
- Firstly, the promise has caveats and it’s worth noting that whilst the John Lewis price promise matches high street prices it excludes online retailers such as Amazon who can afford to undercut high street prices as they don’t have store overheads.
- Secondly, John Lewis have invested heavily in own brand labels which won’t be sold more cheaply elsewhere thus avoiding the price promise issue.
Will the discounting frenzy on the high street end?
This seems unlikely - it certainly shows no sign of abating. As the John Lewis partnership chairman, Sir Charles himself said, when announcing the disappointing results "With the level of uncertainty facing consumers and the economy, in part due to ongoing Brexit negotiations, forecasting is particularly difficult but we continue to expect full year profits to be substantially lower than last year for the partnership as a whole."
In these unpredictable times the retailers who are doing best are those that are minimising external uncertainties, via a focus on own label brands, investment in multi-channels and also by ensuring their product is as aligned to their customers’ wants as possible.
This is where Mallzee Insights helps. Using our engaged shopping community on the Mallzee app we work with retailers big and small to test potential products prior to bringing them to market, helping avoid costly product mismatches (which quickly end up on discount)!
The good news for John Lewis fans is that the management team have identified the discounting risk and has strong strategies in place to minimise the impact.
One final point, John Lewis have just launched a huge rebrand, drawing attention to their employee owned business model. With this renewed focus on the value of employees/partners it will be interesting to see what the ‘partnership bonus’ (paid to all John Lewis employees/partners) is this year, as it’s been steadily dropping over the last few years to reflect the straightened trading conditions being faced (10% in 2015, 6% in 2016 and then 5% in 2017)!
Do you think John Lewis are well positioned to tackle the challenges of the high-street? We do, at least better than some of their counterparts.