John Lewis makes another loss, could convert part of flagship to offices
John Lewis Partnership’s half-year results made difficult reading on Thursday as the department stores and supermarkets retailer that formerly could do no wrong continued to struggle.
In the six months to July 25, it made a pre-tax/pre-exceptionals loss of £55 million, which John Lewis chair Sharon White described as “a creditable performance in the circumstances and ahead of expectations in our April trading update”.
The figure was only slightly wider than the £52 million loss the company made a year ago, although the first half of 2019 and the first half of 2020 could hardly be compared to each other as they were so different.
And when looking at the final pre-tax figures (after exceptional items were also taken into account), the loss this time was £635 million compared to a profit of £192 million a year ago.
The company estimated lost trade from the closure of its John Lewis shops at over £200 million of sales. Its department stores were shut for around three months during lockdown, although its Waitrose supermarkets continued to trade and take advantage of the consumer focus on essentials.
Yet total sales held up reasonably well because the company could continue trading both online and offline through Waitrose during the pandemic and online only for John Lewis. This meant total trading sales rose 1.1% during the period to £5.567 billion. But the firm said shoppers “spent more on less profitable lines such as laptops and loo rolls” so margins were hit.
Overall, it said sales through the John Lewis department stores business were down 10% year-on-year but “online sales growth was strong at 73%, helping to offset the impact of shop closures”.
Encouragingly, sales momentum “is starting to build in reopened stores, with sales down around 30% on last year, ahead of expectations”.
Stores in retail parks are down by around 15% and are doing better than city centres, especially London, which is down around 40%. Home working has had a big impact on what people are buying with the company saying it’s selling “more TVs and tablets, fewer trousers and trainers”.
PHYSICAL STORES LESS VALUABLE
Online now accounts for more than 60% of sales, from 40% before the pandemic. And Sharon White said that “as a result of this pronounced shift to digital we had to reassess how much shops contribute to whether our customers buy online with us or not. Before the crisis we believed that shops contributed around £6 of every £10 spent online. We now think that figure is, on average, around £3. This has the effect of reducing the book value of John Lewis shops by about £470m”.
While that may be a technical adjustment to its accounts, it’s one that could have far-reaching implications for the firm’s stores and its willingness to continue operating some of them. It has already announced eight closures and has plans to convert part of its Oxford Street flagship to non-retail space.
Nothing has been announced yet but newspaper reports on Thursday said John Lewis has filed plans with the local authority to convert upper floor space at the Oxford Street location into offices for rent.
The store, which once accounted for 10% of the department store chain’s total revenues, would be left with four trading floors. That’s still large but is also an illustration of how retail has been changed forever both by the rise of online and consumer aversion to city centres.
That said, the early weeks of H2 trading have been “encouraging” at John Lewis. Its new Home collection has launched and a bigger revamp for this key category is set for next spring. Services previously only available in store — personal and home styling, beauty and nursery advice — can now be accessed online as well “and take-up is high”.
The company opened its Christmas shop early this year and sales of Christmas trees and baubles "are both markedly up on last year”.
We heard very little about how fashion did in the first half or how it’s going in H2 either, apart from that comment about consumers not buying so many trousers and trainers. It seems likely that this category that was once a growth star for the department store is struggling.
The company said the outlook for the second half is “clearly uncertain given the broader macroeconomy”. But it continues to see a 35% full-year sales fall in its department stores as a worst-vase scenario. It also thinks the most likely outcome will be a small loss or a small profit for the year. Whichever it is, the firm’s staff will get no bonus this year.
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