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John Lewis chairman: differentiation, not scale, will be our strategy

Lauretta Roberts
27 June 2018

John Lewis chairman Sir Charlie Mayfield revealed the firm's future business strategy this morning saying it will focus on differentiation, innovation, service and sound financials and that "the relentless pursuit of greater scale is not the right course". But he also revealed that profits for the first half of this year would be "close to zero".

The business, which operates 50 John Lewis department stores and 353 Waitrose supermarkets, "has a store estate that is better sized and better quality than its competitors, combined with a leading capability online" said a statement.

Nonetheless Mayfield said that retail was undergoing a "generational shift" and John Lewis needed to respond to that to ensure the future good health of the business.

The three key points at the heart of its strategy were outlined as:

  • Focusing on differentiation, not scale: An increased focus across the whole business on competing through differentiation and innovation, not scale
  • Maintaining higher level of investment in product and service innovation: Continue to invest at a rate of £400m-£500m per year, take further steps worth £500m over three years to strengthen the balance sheet, while recognising the short-term pressure on profits
  • Partners at the heart: Recognising and enhancing the role Partners [staff] play in the differentiation of both Waitrose and John Lewis

"We have clear plans to build on our strengths and to sharpen our points of difference in both Waitrose and John Lewis. These plans include further investment in and development of unique products and service, together with a greater emphasis on own brand and innovation," the business said.

At the centre of the differentiation strategy would be a focus on own-brand product at both Waitrose and John Lewis. At the department store around 30% of products sold are own brand, which it intends to increase to 50%. In fashion it will also look for exclusivity on third-party brands. For instance, it recently secure a UK retail exclusive on Madewell, the younger sister brand to J Crew.

Madewell

Madewell: exclusive to John Lewis in the UK

As well as exclusivity, service will be key to its stores, Mayfield added. Its most recent store opening at Westfield London is an indicator of its future vision featuring areas such as the Discovery Room, where customers can come and learn new skills, along with a Style Studio for personal shopping and group style consultations for men and women.

John Lewis

The Style Studio at John Lewis Westfield London

While the business has been investing heavily, given the market volatility, Mayfield said he expected first-half profits (which are always lower than the second half) this year to be wiped out. "We expect the Partnership’s half year profits before exceptional items – which are always much lower and more volatile than the second half – to be close to zero this year. For the full year there are a wide range of possible outcomes, given the market uncertainty, but we are currently assuming that profits before exceptional items will be substantially lower than last year," Mayfield said.

The business is nonetheless committed to continuing a high level of investment and announced that it would take steps to strengthen its balance sheet by a further £500m over three years to invest in product and service innovation. "This will be achieved by rebuilding profitability at Waitrose, creating more value from the property estate, and conducting a review of the Partnership’s pension scheme," the company said.

While John Lewis has two new stores in the pipeline, at Cheltenham and Westfield Croydon, Mayfield said the business would review its store estate and continue with exits and openings in line with the rate seen over the past few years. As such, he said, it would be closing four Waitrose convenience stores and one small supermarket.

"The John Lewis Partnership is a unique business with different ownership, a different purpose and a different outlook to any of our competitors. As retail changes we need to tread a path that enables us to thrive as a business while building on the qualities that make us different.

"For us, the relentless pursuit of greater scale is not the right course. Our plans put differentiation, innovation and Partner led service at the heart of our offer. The measures that we have outlined today are an important next step in our strategy that will ensure we emerge stronger from this period of profound change," Mayfield said.

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