CASE STUDY | JOHN LEWIS PARTNERSHIP’S AGONY – 2022 JANUARY

It started 157 years ago by a person who was named John Lewis and he started a draper’s shop on London’s Oxford Street in London. It was a successful business but it was hard-driving. His son, John Spedan Lewis, was uncomfortable to find that the business gave the family an income of £26,000 while the 300 workers took £16,000 as a combined income. In 1929, after the death of his father, John Spedan Lewis formalized the partnership and announced that the profit would be shared among all its employees. It was a magnanimous act and the staff would one day be able to sell their shares freely.  Later, he transferred his shares into a trust and the partnership’s aim was not to maximize profits, but to generate sufficient profit for its purpose. He made the managers accountable to the staff via a council of elected representatives. Staff could express their complains in the in-house newsletter, The Gazette.

The company puts its staff first, with shopping discounts, a final salary pension with no contribution and holiday on company’s estates.

The company was growing at time with its sales and profits by double digits. It the noughties, it payed £35 million for a 40% stake in online retailer Ocado, and started delivering Waitrose’s food. It was doing its own online retail for its own clothes and housewares. Its bonuses hit 20% of salary in 2008 and every partner received an equivalent of two months’ extra pay.  

John Lewis met its problem, which was their rapid expansion in stores and they claimed that in every city there would be a need of John Lewis store. In 2013, it invested £35 million for a store in Birmingham and a few months before the pandemic hit, the company had already turned back on a decade of brick-and mortar expansion. As the result, one in three of its 51 department stores have closed, including the one at Birmingham’s Grand Central Station, that was opened only in 2015.

Its chairman, Sharon White, who took the office in 2019 was without retail experience, she came from Ofcom, an UK telecom company. She moved fast and replaced a lot of senior managers and now none of the seven top managers were in their roles two years ago, and five weren’t in the company.

Today John Lewis and Waitrose are running the business separately and it was in 2010 they sold Ocado and picked up the online business by themselves. Since then they have been doing the catching up as customers are complaining about the freshness of the food. Before the pandemic, the on-line business was contributing £6 out of £10, but in 2020 it was only £3. And online business so far for 2021 went from 40% to 75%.

But it sees its business future in financial services and it also wants to build 10,000 homes by 2030, including the underused stores and carparks. In 2024, it is going to rent its first homes in Greater London. It wants more ethical housing, more social housing, more homes for its partners, and low-carbon houses.

As the company, John Lewis is looking for predictable income and to receive a 3.5% yield on 10,000 homes being rented out would bring £150 million a year.

The partnership now expects to pay a bonus if profits exceed £150 million and its debt ratio falls below four times. It meant to follow the legacy of the founder. But many of the young customers don’t think that they are related to this nature. They tend to spend more with Amazon and Lidl.

The UK customers want to experience—to shop both online and in-store, they can still find this with John Lewis, unlike those like Asos who has only the online to offer.  

Next is still doing well and this year they have the forecast of pre-tax profits of £800 million which is more than double of what John Lewis has ever achieved. Next is channeling its profit back to its external shareholders, and John Lewis is doing the opposite to broader its social impact. John Lewis has committed to use sustainable materials across all its own-brand products by 2025 and to achieve net zero emissions by 2035. But its closing of the stores have not only broke the heart of its shareholders, but also have brought the disgruntle to customers in Birmingham for the closing of this relatively new store.

One thing about Ocado, it was acquired with £35 million for a 40% stake. The stake was sold for £250 million and the money was transferred to the company’s pension fund. During the pandemic, Ocado, this online retail became a very hot stock and John Lewis’s stake would now be worth nearly £2 billion which was something nobody could have thought of.

After all, we have to understand that when John Spedan Lewis started the John Lewis Partnership, it was an experiment which was meant to prevent the recurrence of industrial strive and the spread of communism. He started the legacy on 1929 after the death of his father. I wonder how long this legacy can continue.     

John Lewis has closed a third of its 50 stores and if you looked back, they still have eight more stores than it did in 2008. Its latest closures are a response to restructure and it was predated Covid-19, rather than a cash-saving gambit. It is pledged to put at least £100 million into improving its 34 remaining shops.