Set your watch, then, for about half a decade’s time. Three years into an expensive five-year turnaround programme, the John Lewis Partnership says it will need an extra two years to arrive at the sunny uplands of a £400m annual profit.
The figure is its definition of a “sustainable” return, meaning one that allows it to invest at a decent pace and pay the staff (or partners) a reasonable annual bonus. The grand day was meant to arrive in the 2025-26 financial year; now it’ll be 2027-28. The blame is pinned on cost inflation and heavier than expected spending on technology.
The partners may be mildly consoled by the officially “improving” tone on trading. The pre-tax, pre-exceptional loss for the first half (most of the money is made in the Christmas period) narrowed by 14% to £57.3m. Waitrose was up in terms of sales and trading profits, despite an IT incident that cost £11.6m. The department stores were down a bit. Overall, the position does look more solid. And the mood may further improve now that John Lewis’s chair, Dame Sharon White, has stopped scaring everybody with her confusing messaging about the possibility of looking for external investors.
Yet, every time the partnership lifts the lid a little on its challenges, there’s an echo of pre-overhaul M&S circa 2017, when the size of its accumulated headaches was becoming clear and yet another “fix the basics” strategy was needed.
Try this statistic on the partnership’s expansion between 2000 and 2019: the number of partners increased by 24,300 to 60,800 but profits were basically flat in the period. A “longstanding productivity challenge”, as it’s described, is putting it mildly. Or look at the current effort to cajole Waitrose’s workers into shifting their hours to align with busy shopping periods. Most supermarkets completed those exercises years ago and can now fine-tune.
A part where John Lewis could be said to be ahead of the former M&S is in shedding excess space. White was commendably quick during the pandemic to shut 16 John Lewises (34 remain). For all the fuss in Birmingham and elsewhere at the time, it was clearly the correct move for an operation where 57% of purchases are already online.
On the other hand, big IT projects lie ahead – a £100m deal with Google for a digital revamp was signed last month. It’s this techie aspect of the restructuring that looks the most risky. Modern retailing history is littered with examples of companies that discovered that these IT overhauls cost more than they thought. If John Lewis were a listed company, the shareholders would be demanding assurances that management has a firm grip on the bill.
But the main lesson in the M&S overhaul, which finally seems to be paying off, is that the process has to be relentless. The partnership says its programme has already secured £308m of the eventual efficiency target of £900m. On the principle that the last batch of savings is usually harder to nail down than the first, more urgency is required. One delay is understandable in an inflationary climate. Two would be alarming.
