The John Lewis Partnership has slashed its staff bonus to the lowest level in 66 years, after a severe slump in profits at the department store chain.
The company said 83,900 workers, known as partners because they jointly own the business, would get a payout of just 3% of their annual salary, down from 18% in 2011 and the lowest level since 1953. All partners, from the chairman to Saturday shelf-stackers, receive the same percentage bonus.
Profits at the group, which also includes the Waitrose supermarket chain, tumbled more than 45% to £160m – but the decline at the department store business was worse, at 56%, as the retailer was battered by the tough conditions on the high street. The chain’s trademark “Never knowingly undersold” price promise has forced it to match discounts offered by troubled rivals including Debenhams and House of Fraser, which have slashed prices to pull in customers – and battered John Lewis’s profit margins.
Last year staff were awarded 5% but they had been warned in January that this year’s bonus could even wiped out altogether. The highest annual payout, in the 1980s, was 24%, and the bonus has now been cut for six years in a row.
Spedan Lewis: creator of the partnership
John Lewis may have founded the company that bears his name, but it was his son Spedan, who turned it into a staff-owned business.
Spedan Lewis had a specific aim, which still applies today, to run a business “whose ultimate purpose is the happiness of all its members”. The partnership, he explained, was “an idea for a better way of managing business, so that instead of the many being exploited by the few, there will be genuine partnership for managers and the managed alike, all pulling together for their common advantage”.
Influenced by the ideas of the Welsh social reformer Robert Owen and the artist and designer William Morris, who founded the Socialist League in 1884, Lewis began to set up democratic staff councils in 1919 and first experimented with sharing profits at the Peter Jones store in 1920.
Initially, profits were distributed via preference shares and the first cash and shares payment was distributed in 1965. It was not until 1970 that the bonus was fully paid in cash.
But Lewis had many other ways in which he sought to make life better for workers.
In 1926, he bought Odney, a country house on the banks of the Thames in Berkshire, as a holiday home for staff, followed by the Leckford Estate in Hampshire, which now houses two golf courses, ornamental gardens and access to fly fishing on the River Test.
Today, the group’s five holiday retreats include the 16th century Brownsea Castle in Poole Harbour and a spa and water sports club on Bala Lake in north Wales. Any partner with at least three months' service can visit at a discounted rate. The group also has five yachts on the Solent in Hampshire.
In 1928, Spedan Lewis published a constitution with missives on everything from how to treat shoppers in lifts to the “never knowingly undersold” principle, which remains a key part of John Lewis’s business today.
Sir Charlie Mayfield, thechairman of the group, said the retailer had faced “near-constant discounting across many categories from October onwards”. He also pointed to slow demand, too many shops on the high street and “other retailers’ distress”.
The problems facing the department store business were not a blip, he said, but the result of changes in the way people shop.
A report by market research group Mintel on Wednesday showed how Amazon, and the internet, has changed shopping habits. It revealed that nearly 90% of UK shoppers are now Amazon customers and that 70% of them admit they visit high street stores merely to check products out and ask for advice before buying online. The practice is known as showrooming.
Mayfield said cutting the bonus would allow the group to reduce debts, keep investing and build up cash reserves to cope with the continuing uncertainty in the economy.
He warned about the consequences of a no-deal Brexit: “A chaotic no deal is a very, very bad outcome that should be avoided. The sheer level of uncertainty across the economy is continuing and won’t be lifted until we see some resolution.”
Mayfield is due to step down this year and Patrick Lewis, great grandson of the store’s founder and currently finance director, is among those tipped to take over.
Paula Nickolds, managing director of the department stores, said rival stores had held 40% more discount “extravaganza” events last year, making it “the most promotional market for at least a decade”.
The department store’s profits were particularly badly hit by shoppers putting off purchases of expensive homewares such as sofas and beds because of fears about the economic outlook and a slow housing market.
Some industry watchers believe John Lewis should ditch its costly price promise, but the retailer is trying to find a way around it by offering more own-label clothing and homewares on which it cannot be undercut.
Zoe Mills, a retail analyst at research firm GlobalData, said: “[The] ‘never knowingly undersold’ price match will continue to plague profits unless it rapidly moves towards more brand exclusives and own-brand products.”
The company is adding more services that online retailers can’t provide, such as personal stylists and beauty salons, as a way to tempt shoppers away from their screens and into stores.
“This is a very dramatic shift in the way the whole industry will work,” she said.
The group also said it was selling five unprofitable Waitrose shops to other retailers, with the loss of 440 jobs. The supermarkets, which will close in June, are in Torquay and Teignmouth in Devon, Barry in Glamorgan, Ashbourne in Derbyshire and Blaby in Leicestershire. Five other shops were closed last year.
Waitrose posted an 18% rise in annual operating profits as it reduced its price matching against other grocers.
Its online grocery sales climbed 14% and Waitrose said it would be stepping up investment in its web operation as it attempts to double the size of the business before the end of its tie-up with Ocado in autumn 2020, which has done a new deal with Marks & Spencer.
Group profits are expected to increase in the year ahead as Waitrose continues to trade well, though the department stores might fall into a loss over the next six months as Brexit disruption continues to hit trading.
• This article was amended on 19 July 2019 to correct the spelling of Blaby, from Blayby as an earlier version had it.
