John Lewis Partnership’s first-ever chief executive has been tasked with two things after the retailer swung to a loss today: cut costs and grow the top line.
The company, made up of John Lewis and Waitrose, reported a loss before expectational items and tax of £78mln compared to a profit of £128mln the year earlier.
Increased inflation, which added £179mln to outgoings, property write-downs, and increased costs in energy and wages contributed to the final bill, while a shift in consumer habits away from the high streets to retail parks weighed on revenues.
New chief Nish Kankiwala, formerly a non-executive director of the partnership, is therefore tasked with finding ways to reel in costs while also increasing the group’s revenue, which slipped 2% to £12.25bn.
All this needs to be achieved in the middle of a tough market and consumer conditions. which the retailer expects to continue this year. Not a straightforward task.
Indeed, further cost savings was mentioned in the company’s full-year results, targeting an additional £600mln by January 2026 on top of the £300mln saved in the last two years.
John Lewis’ analyst call today, according to retail analyst Nick Bubb, suggested that the retailer had plenty of stuff going on in the background and that Kankiwala wouldn’t have anything extra on his plate, at least in the short term.
With that being said, the new John Lewis managing director said in the call that it would be looking to consolidate its supplier base, reduce its ranges and move sourcing back to the UK.
Reducing the number of stores in the face of high energy bills and inflation has also been touted among analysts as a way to scale back on costs, while also helping the company shift its focus towards diversifying revenues from its property portfolio.
The retailer is looking to ease into the ‘build-to-rent’ market, with the first locations to be built above Waitrose shops in Bromley, West Ealing and Reading.
The plan is to deliver 10,000 homes over the next ten years, with the hope that 40% of its profits come from outside of retail by the end of the decade.
In some ways, the move makes sense.
Today’s results show that John Lewis, more so than its competitors such as Marks and Spencer and Next, is vulnerable in the current market conditions.
Generating different revenue streams should position it better, but the downside is that it will “become less of a retail linchpin,” according to Susannah Streeter, head of money and markets at Hargreaves Lansdown.
If the retailer wishes to remain a ‘linchpin’, it may be wise to follow the lead set by Marks and Spencer and lean further into retail parks and away from the high streets.
In September 2022, the retailer, which is expected to overtake John Lewis in sales by 2026, had 79 retail park locations, up from 75 in March 2022, while total high street locations fell to 153 from 156.
Larger selling spaces, cheaper rents, and the opportunity for the sites to double down as a distribution hub are some of the benefits, and the results are clear to see in the top line.
Marks and Spencer, in its full-year results released last May, said retail park revenue grew by 22% on pre-pandemic levels, while high street fell by 8% and city centres fell by 14%.