John Lewis, the employee-owned retailer whose department stores and supermarkets have become a mainstay of middle-class Britain, will cut annual staff bonuses to their lowest level in 65 years in the face of continued pressure on the UK high street.
The retailer said that it would pay a 3 per cent bonus to staff – the sixth consecutive year that the closely watched figure has been cut – after pre-tax profit before exceptional items fell 45 per cent for the year to the end of January.
While profit at supermarket chain Waitrose rose after range improvements boosted margins, John Lewis department stores were hit by a shift away from high margin homeware sales and heavy discounting elsewhere in the sector.
Sir Charlie Mayfield, chairman of John Lewis, said that it had been a challenging year, and particularly in non-food. These pressures would continue into 2019, he added, leading the group to increase cash reserves.
The reduced bonus to staff – in effect its shareholders – would also allow John Lewis to continue debt reduction, maintain investment and retain “solid cash reserves to cope with the continuing uncertainty facing consumers and the economy”.
The group had warned in January that it would “need to consider carefully” whether to pay a bonus given uncertain business and economic prospects. Bonuses had already declined sharply, from a recent peak of 18 per cent of salary in 2011 to just 5 per cent last year.
In June, John Lewis admitted that half-year profits would virtually disappear because of heavy investment in service and technology. The group said then that it intended to invest £400 million (€465 million )to £500 million a year, and strengthen its finances by selling some property and reviewing its unusually generous pension arrangements. Over the summer, it rebranded itself by adding the suffix “and Partners” to its two trading brands.
“There were 40 per cent more ‘extravaganza’ events last year,” said John Lewis managing director Paula Nickolds. “It was the most promotional market in at least a decade.”
In theory, the department stores should have benefited from the difficulties endured by its main rivals. Trading at House of Fraser deteriorated sharply during 2018, with the 59-store group eventually bought out of administration by Mike Ashley's Sports Direct. Mid-market rival Debenhams issued three profit warnings and suffered a 90 per cent collapse in its share price.
But John Lewis is hamstrung by its “never knowingly undersold” price-matching guarantee, which obliges it to match the discounts being offered by increasingly desperate competitors.
Waitrose is facing intense competition from the premium ranges offered by both mainstream supermarkets such as J Sainsbury and by discounters Aldi and Lidl, who have significantly expanded their premium ranges and are opening 100 new stores between them each year.
Last week, online grocery retailer Ocado said it would stop selling Waitrose own-label groceries on its platform after agreeing a joint venture with Marks and Spencer. – Copyright The Financial Times Limited 2019
