John Lewis lays out radical survival plan as it warns on slumping profits

The management of John Lewis and Waitrose on Wednesday warned that profits will be “substantially lower” this year as they laid out a new strategy to cope with the “intense change” on the High Street.

The business, battling resurgent rivals and the rise of online shopping, said it doesn’t expect to make profits for the first half of the year and full-year operating profits will be much lower than the £250 million it posted for the year to January 27. Its pre-tax profits tumbled by 77% to £103.9 million in 2017.

Chairman Sir Charlie Mayfield told the Standard: “This market is changing and this isn’t just a blip, it’s going to carry on for a really long time.

“It’s possible we’ll have a much better performance in the second half but it’s more sensible to assume that the profits pressure will continue. If we do better we’ll be pleased but we’re not banking on it.”

John Lewis Partnership, owned by its 85,500 employees, today set out plans to accelerate the investment in its products and expand the services it offers to stay ahead of the competition.

It will plough between £400 million and £500 million a year into innovation while seeking cost savings of £500 million in the next three years. Mayfield is expecting a review of the partnership’s pension scheme and more robust profits at the supermarket chain to strengthen the balance sheet. It will also close four Waitrose convenience shops in Manchester, Birmingham and London, plus the Waitrose supermarket in Camden.

Waitrose, which has a 5% share of the grocery market, has had to cut its prices to compete with the likes of German discounters Lidl and Aldi. It now plans to stock more own-brand products and improve quality. John Lewis will offer more services — such as kitchen fitting or travel advice — and increase its womenswear. “It’s a financial strategy for any weather,” said Mayfield. “You’ll never achieve success just by [making] cuts and reductions. A strategy that doesn’t include ambitious investment is one that’s almost bound to fail over time.”

John Lewis rival Debenhams last week said it will have to curb its investment amid slowing sales. But John Lewis’s online rivals are growing rapidly and Waitrose is facing stiff competition from a resurgent Tesco.

The mutual also revealed it will gradually rebrand its stores to Waitrose & Partners and John Lewis & Partners. Partners have seen their bonuses fall from 10% in 2015 to 5% last year.

The partnership’s debt pile is expected to be lower this year — three-times-earnings ratio compared with four-times-earning ratio last year. Its net borrowings were £216.5 million in 2017.