Not so many years ago, John Lewis Partnership (JLP) seemed unstoppable while M&S looked to be in an endless turnaround phase. Today, the situation has reversed as JLP struggles and reportedly thinks the unthinkable on its ownership structure, while a reenergised M&S appears to go from strength to strength.
A report has suggested JLP is looking at diluting its partnership structure. The Sunday Times was the first to report that chairman Sharon White is at an early stage of considering the sale of a minority stake in the business. That means it would no longer be 100% owned by its staff, although they’d retain the majority stake.
That could raise between £1 billion and £2 billion if the partnership council approved such a move and with the caveat that any investor would have to share its ethical and employee-focused values.
JLP hasn’t commented, and of course it might never happen. But why is such a radical move even being considered? The fact is, JLP seems to have taken over the M&S role in British retail — it has been underperforming and shows no signs yet of a turnaround, Meanwhile, M&S’s recovery is moving into a higher gear.
M&S is linking up with new brands, reporting higher sales and profits, growing e-sales and grabbing market share. JLP has also reported rising fashion market share via its John Lewis department stores, but that came along with widening losses, talk of job cuts to come, it drafting in a CEO who’s known for making the tough decisions that an employee-owned business might find hard to take, and that news about a possible stake sale.
So what’s happened to change their fortunes and what’s been going wrong and right for the two firms?
EVOLVING DEPARTMENT STORE MODEL
The disappearance of rival department store chain Debenhams from physical retail and the shrinking House of Fraser chain should have been good news for the John Lewis chain, leaving it dominating the mid-market department store landscape. Instead that landscape shrank to the point that even some John Lewis branches seemed superfluous. The result? Store closures.
And the department store model itself has morphed, driven by previously monobrand businesses like M&S (plus Next and a raft of online-only players). They now offer multiple brands that they either own, license or stock on a wholesale basis via a new-style department store model that directly impacts John Lewis.
That new-style model focuses on super-categories (like fashion and beauty) rather than underperforming categories (like electricals and large furniture). M&S seems to have an advantage here compared to John Lewis with its broader category spread.
THE ONLINE DILEMMA
JLP was an early mover — and winner — in e-tail. But that was always likely to present it with a future dilemma. Unlike a business such as Next, which had long balanced catalogue with store sales and adapted this smoothly to online with stores, JLP was a store-based business. Its online success meant expensive physical spaces were generating less of its revenue. After some painful store closures, its 60:40 online/stores sales mix still leaves it needing to rethink its stores (more of that below). For M&S, online still only accounts for around a third of sales. JLP’s higher percentage means it’s also having to deal with the high level of returns and higher fulfilment costs that come with a big web-based business.
M&S, by contrast, was heavily criticised for being late to the online party, but as a latecomer, it’s still enjoying online growth with a clear runway for future growth too.
Both JLP and M&S have been closing stores (including John Lewis and Waitrose on the part of JLP). But M&S has arguably been more radical here and is further ahead in the rationalisation process. The need to reduce space came up on JLP quickly. For instance, one store it closed in 2020 (Birmingham Grand Central) was only opened in 2015 after a £35 million investment!
Importantly though, M&S is now also opening new branches. And while many are food-only, it’s also adding new space for Clothing & Home in key locations. It’s taking over a former Debenhams branch at the Liverpool One mall for a 100,000 sq ft state-of-the-art new store.
M&S has a network of 1,487 stores (and 98 websites too, after massive recent expansion) compared to 34 John Lewis stores plus one outlet and 332 Waitrose shops. At a time when physical shopping is recovering post-Covid in a way few had thought likely, M&S with many more stores than JLP is well positioned to take advantage of this. Not that the latter is neglecting stores. It has invested in its department store branches and the recently-revamped 47,000 sq ft Horsham John Lewis — with the new design the result of it working with neuroscience experts to help it enhance areas of the shop with sensory elements — is a clear sign that it’s rethinking its store space both for the 2020s and 2030s.
As mentioned, M&S seems to be further down the road on its store reshaping journey with a long way still to go for John Lewis.
It’s not all bad news for John Lewis. Mid-market businesses would be expected to feel the pressure in the face of the cost-of-living crisis. But that crisis doesn’t seem to have weighed too heavily on them. M&S said recently that its customers are resilient and able to continue spending.
While the same is likely to be true of JLP, it will still find some shoppers preferring to trade down. But it has addressed this with the launch of its John Lewis Anyday budget line. The Anyday interiors and fashion range means if customers want to trade down, they can do so at John Lewis. It appears to have gone down well.
Importantly too, JLP said during its latest results announcement that people are shopping across its price ranges. Over 70% of Anyday fashion customers also bought its mid-tier John Lewis & Partners own brand last year and more than 75% also bought branded items, proving that consumers are still shopping at higher prices.
But a problem for JLP is that grocery is a bigger part of its overall business and in an inflationary environment — with shoppers flocking to Aldi and Lidl — that’s a negative.
Both retailers are facing intense competition in the fashion (and beauty) arena but they’re also investing heavily in what are key pillars of their businesses.
And while M&S has never actually been at the cutting edge of trends, it seems to be the one with the momentum behind it at the moment.
Under ex-CEO Steve Rowe and his successor Stuart Machin (the former a long-term company insider and the latter having been there for five years) it’s been able to build on its status as the expert in key categories to promote them over and above what might work in a traditional department store. Its Goodmove activewear, its knits, bras and denim are examples here.
And while John Lewis has always sold external brands, M&S’s inclusion of them only recently has given consumers extra reasons to shop with the chain. John Lewis is no laggard in fashion but, as mentioned, the momentum is with M&S.
MANAGING AND MANAGEMENT
M&S spent a long time in turnaround mode and saw a lot of big changes. But while that was happening, JLP was riding high. For the employee-owned business, radical change has come more recently.
After her arrival in 2020, Sharon White restructured and ended the model in which the department stores and supermarkets were almost run like separate businesses (something that has never been the case with M&S’s Food and Clothing & Home operations).
New faces have also been drafted in and change is still happening with the recent exit of John Lewis head Pippa Wicks and a new JLP CEO announced just this week.
M&S has seen plenty of management movements over several decades too, but its big changes in recent years have been driven by insiders who’ve been with the business for years, who know its people and its culture.
It will be interesting to see how JLP’s new (and first-ever) CEO, Nish Kankiwala, fares. His appointment after the exit of Wicks (with unconfirmed reports of culture clashes) is interesting. She’d been seen as a turnaround expert to drive the chain forward. The new CEO comes from a very different background in FMCG and foods. He’s been known for tough decision-making in his career that might worry JLP staff who know job cuts are coming. But his experience as a non-exec at the firm for two years suggest there may be fewer culture clashes, despite the difficult decisions that will be made. Either way, he has deep experience of leading private equity-backed businesses and it’s interesting that he’s been appointed just as reports of potential a stake sale emerge.
DON’T WRITE OFF JLP TOO SOON
Sharon White has said that JLP is going through the “greatest scale of change” in its century-and-a-half history. That change includes it branching out from retail into the rental housing market. But its core expertise is as a retailer and it clearly remains a big player here with total sales of £12.25 billion last year and John Lewis-specific sales of £4.94 billion.
While it appears to be struggling given the scale of its ongoing losses, it seems too soon to write it off. And that’s where the comparison with M&S is also relevant. Observers dismissed that business for years (even decades) until it proved them all wrong. And even Next — the high street stalwart that’s always held up as an example of an unstoppable success story — has had its ups and downs.
It’s clear that JLP is currently challenged and that turning around a ship of its size isn’t something that happens in a matter of a few months. A stake sale to a sympathetic investor might be just what it needs, generating new funds and bringing new ideas on board. Or it may decide to go it alone. Nobody knows, but it will certainly be an interesting process to watch from the sidelines.
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