LETTER FROM SHARON WHITE TO PARTNERS
I am writing to you today as a fellow co-owner of the John Lewis Partnership to share our financial results for 2019/20.
We are the largest employee-owned business in the UK and amongst the largest in the world. We are to all intents and purposes a social enterprise; the profits that we make are reinvested into the business - for our customers and our Partners.
Our constitution requires us to make sufficient profit to keep the Partnership going, not the highest amount possible, and to put our customers and our Partners ahead of profit.
Throughout 2019 Partners right across the business have shown incredible passion for and commitment to our customers, and continue to do so. I have seen this first hand in all the visits I have made since I became Chairman - from our contact centre in Hamilton to our textile mill at Herbert Parkinson; from our distribution centre at Magna Park to our Waitrose store in Mill Hill.
FINANCIAL PERFORMANCE AND BONUS
With the hard work of Partners, we made £123m of profit1 in 2019/20, which is 23% less than we made in 2018/19. This is a weaker performance than we had hoped for, driven by significantly reduced profitability in John Lewis. Despite a solid performance in Waitrose, it is our third year of declining profit across the Partnership as a whole. This year we saw a one-off reduction in the value of our John Lewis shops of £123m, principally as a result of shops playing less of a role in driving online purchases.
Profits in 2019/20 were at the lower end of what we had forecast. We are, therefore, awarding a bonus this year of 2%. I believe this is prudent and affordable and it recognises the contribution made by Partners working in the business today without creating risk for our future sustainability. The result is that we are able to continue to invest in our customers and pay down more of our debt - this year our total net debts has fallen as a ratio of cash flow from 4.3 to 3.9 times.
THE PARTNERSHIP’S STRENGTHS
We have considerable strengths as a business:
- We have passionate and committed Partners who have huge creativity and innovation.
- We have two of the best loved brands among UK customers. Waitrose is the Which? supermarket of the year2 and John Lewis recently topped a YouGov poll3 for the high street’s most recommended brand.
- We are a ‘purpose-led’ business that aims to put people and the planet before profit. We do not make out to be perfect but we do seek to take an ethical approach to business and help our customers to shop more sustainably.
- Our co-ownership model means we can invest for the long-term benefit of our customers.
Looking back on the last year, I am particularly proud of the investment we make each year in community and environmental projects. Examples include our ‘Unpacked’ trial that reduces the amount of plastics used for fresh food and staples in our Waitrose shops, which we will be extending this year, and our partnership with the charity Fareshare that gave festive meals to more than 1,500 people who might otherwise have gone without.
PRIORITIES FOR THE YEAR AHEAD
There are areas of the business where we know we need to serve customers better. In John Lewis we will be refreshing our home offering, introducing more inspirational and contemporary ranges with improved pricing and delivery. We will also be making improvements to John Lewis online to make it easier to shop.
We will be investing significantly in Waitrose.com, ahead of our partnership with Ocado ending in September. Sales growth through Waitrose.com was 13% up in 2019/20. We are also recruiting 2,400 new Partners and building a new fulfilment centre in Enfield to meet increased demand for Waitrose products online.
All of us are aware of the challenges in retail. New technology means that shoppers have never had so much choice, value and convenience. That is to be celebrated. And there is great opportunity for retailers who have an intimate understanding of their customers to respond to them in an agile fashion. Every Partner can make a difference this year by focusing relentlessly on service - wherever they are in the business. If we get it right, customers will return to shop with us and we’ll earn their lifelong loyalty.
Future Partnership will slim down our head office functions and promote closer working between Partners in Waitrose and John Lewis. It will cut costs and over time make it easier for customers to shop across the two brands. As we restructure, we will take care not to lose the distinctive nature of the two brands.
We need to reverse our profit decline and return to growth so that we can invest more in our customers and in our Partners. This will require a transformation in how we operate as a Partnership and could take three to five years to show results. We are stepping into a vital new phase for the Partnership and I have no doubt we will come through it stronger.
Last month I spoke at Partnership Council about the Strategic Review of the Partnership that we are now launching. The review is being led by the executive team but all Partners - those of us who are active in the democracy and those who are not - will have the chance to contribute and shape our future. Further details will follow.
The Strategic Review will focus on how we strengthen our core retail business and develop new services outside retail. As part of this we will also look at ‘right sizing’ our store estate across both brands, through a combination of new formats and new locations; repurposing and space reductions of existing stores; and closures, where necessary. Over the last few years we have reviewed Waitrose stores that were no longer viable and today we are announcing three Waitrose stores that will close later this year at Helensburgh, Four Oaks and Waterlooville. These decisions are never taken lightly and every Partner who wishes to stay in the Partnership will be actively supported to do so.
At the outset of the Strategic Review I want to make clear that we will:
- Continue to be an employee-owned Partnership.
- Retain our two brands - John Lewis and Waitrose.
- Put exceptional customer service at the heart of what we do - whether in store, online or in customers’ homes.
- Focus on quality and value, with Partners empowered to offer products and services that are more local.
- Put even greater emphasis on sustainability.
The Strategic Review will be completed by the autumn and we will give a further update with our half year results. At the end of the review every Partner will be clear on the concrete plan and what the future means for their area and for the Partnership.
These are the most challenging but exciting times in retail for a generation. Together we have the opportunity to secure the Partnership not just for the next five years but for the next 100.