John Lewis has warned that its half-year profits will be “close to zero” in the year ahead, raising alarm about the high street stalwart’s trading.
So what is happening at John Lewis, and is it heading in the same direction as rivals such as House of Fraser?
– Why are profits down?
The John Lewis Partnership made £83 million in half-year profits in 2017-18, but has said these will be close to zero this year because it is investing in its IT systems.
It is taking a hit on its profit because the business believes it must continue to maintain its investment levels “whatever the economic environment”.
The retail bellwether warned that extra costs for the full year meant profits would be “substantially lower”, although Waitrose is in line to see profit growth.
– Why is Waitrose closing stores?
Sir Charlie Mayfield, chairman of the John Lewis Partnership, said he does not believe the business should be growing sales by opening more stores, and that it will instead look at handing back space to landlords in the years ahead while also closing some outlets.
He also warned that business rates and rising labour costs had been “driving the distress” within the retail industry, and that the company had to take action.
To save on costs, Waitrose will sell five of its convenience stores to the Co-op and hand one of its supermarkets to Aldi.
– What about other retailers?
This year has been torrid for high street retailers, with department stores showing some of the most significant signs of financial distress.
House of Fraser has announced it is shutting 31 stores as part of a restructuring plan designed to help it avoid falling into administration. Its flagship store, which sits alongside John Lewis on Oxford Street, is one of the outlets earmarked for closure.
Meanwhile, Debenhams has issued a string of profit warnings. It is also assessing whether to close stores, and analysts have warned it could breach its debt covenants if trading worsens this Christmas, potentially putting its finances in peril.
However, Sir Charlie was keen to draw a distinction between John Lewis and the other high street retailers shutting stores in recent months.
He said the store closures were on nowhere near the same scale seen at Carpetright, Mothercare and others, and that John Lewis was instead making decisions that would allow it to be sustainable in the long term.
– What else did the John Lewis Partnership say at its strategy day?
The retailer also launched its rebrand, which it has been working on for more than a year. The company said it had made the changes to put its staff (also known as partners) “at the heart” of the business. The new branding – which will see the two firms dubbed John Lewis & Partners and Waitrose & Partners – will be rolled out over the next five years.
To strengthen the company’s balance sheet, the board is also looking to save around £500 million over the next three years.