John Lewis plots local strategy amid ‘economic earthquake’ of Covid

The partnership is hoping to recover from a severe loss with a strategy focused on local stores, a new pricing structure and closer integration between the John Lewis and Waitrose brands.

John LewisJohn Lewis is hoping to tap into the promise of localism with a dual-pronged strategy combining the rollout of smaller, service-orientated outlets with the integration of its brand into Waitrose stores, as the partnership fights a £517m pre-tax loss in 2020.

Looking to capitalise on the shift to remote working, John Lewis will open several stores in neighbourhood locations. These will offer a mix of services, alterations, home consultations and personal styling, with a curated edit of products that will change on a regular basis.

These service-orientated local shops will be complemented by destination stores in city centres offering new product, food and drink and services customers cannot access online. This will be accompanied by an expanded click-and-collect network extending to more Waitrose stores and local collection points with third parties, such as the Co-op.

There is a desire to bring the partnership’s brands closer together. By the end of the year all general merchandise sold in Waitrose will be John Lewis branded and the organisation is also trialling John Lewis “inserts” in five Waitrose stores. Initial signs are positive, with the intention being to introduce the John Lewis concept to a significant number of the partnership’s 331 Waitrose shops.

The decision to switch to local formats and bring the two brands closer together is the product of intensive research over the past six months, according to executive director of John Lewis, Pippa Wicks.

“That’s included watching focus groups, being part of focus groups, being in our customers’ homes – when we were allowed given government restrictions – shopping with them, looking at how they live their lives and the role we can play in the big moments in their lives and also in the everyday moments in their lives,” she told Marketing Week during the retailer’s 2020 results presentation today (11 March).

“We’re very clear about our target customers. We have two groups. One has a slight preference for online and is a bit younger. The other group has a slight preference for being in store and the service they can get in store, and might be a bit older. But both of our target customers have got a really strong family orientation and so you’ll see that playing through in what we do online and in store as we go forward.”

I don’t think we will go back to full working from offices, so being nearer to where customers live is really important.

Pippa Wicks, John Lewis Partnership

The research shows that 50% of John Lewis customers use a combination of online and stores when making a product purchase, which means nailing the omnichannel journey is crucial.

“They also said to us, ‘We’d really like to shop more with you, but it’s just not convenient as you aren’t near where we live and we’re going to be spending more time near our homes’,” Wicks added.

“I don’t think we will go back to full working from offices, so being nearer to where [customers] live is really important and we can do that through click-and-collect, through partnering with Waitrose and through a small number of smaller formats where we’ll bring the best of John Lewis, the great services and a lot of newness on a regular basis.”

Waitrose executive director James Bailey told Marketing Week the decision to bring the brands closer will help make purchase decisions simpler for consumers.

“The proposition in the Waitrose stores has to look and feel exciting and engaging, but we also have to present the full John Lewis range maybe digitally, but also maybe via our partners to all of those customers as well, so we’re working on all of those plans,” he added. “From a Waitrose brand perspective, it’s really exciting to welcome the John Lewis brand into our stores physically.”

John Lewis poised to unveil ‘modernised brand purpose’

The idea is to have more places to shop John Lewis locally, but these sites are “not all going to be department stores”, explained the partnership’s chairman Dame Sharon White, who reflected on the “economic earthquake” caused by Covid-19. The plan is to adjust the store estate to the “different dynamics” of city centre and neighbourhood high streets.

This shift in direction comes as John Lewis confirmed several of its existing stores will not reopen once the lockdown lifts on non-essential retail on 12 April. This is in addition to the eight John Lewis and seven Waitrose store closures announced in 2020.

The company is looking to claw itself back to a position of profitability after reporting a pre-tax loss of £517m in the 53 weeks ending 30 January, compared to pre-tax profit of £146m the previous year.

Focus on price

Aside from a shift to localism, John Lewis plans to dial up its focus on value, with the rollout of a new pricing structure. New entry price points will be launched for spring/summer 2021 and will be visible to customers once stores reopen on 12 April.

“When we open up from the lockdown you will see in our stores lots of new entry price points, lots of other products repriced at different levels and it will be very enticing and exciting. Later in the year we will have other exciting things to unveil. We want to keep a sense of high anticipation and excitement,” Wicks told Marketing Week.

White confirmed the iconic ‘Never Knowingly Undersold’ price promise remains under review, as the business does more research to understand the implications of the price commitment in light of the shift to online.

“We’ve been doing an awful lot of customer research and that insight is continuing, not least because you’re working through the degree to which many of the shifts we’ve seen are permanent or not,” she added.

“Best value will always be central to the brand. Never Knowingly Undersold has been with us since 1925 and so there will be a place that is still very much focused on fair value. You’ll see in stores in the next few weeks a new plan we’re launching for John Lewis, which is the quality and style you’d expect and possibly prices you might not expect.”

This focus on value includes putting a greater emphasis on customer service, following a £10m investment in additional customer care partners and self-service solutions. Wicks attributes the investment to a four-point year-on-year increase in net promoter score to 70, a record high for John Lewis. Waitrose also saw its customer satisfaction score rise 5.5 percentage points to 69% during the period.

Best value will always be central to the brand. Never Knowingly Undersold has been with us since 1925 and so there will be a place that is still very much focused on best value.

Sharon White, John Lewis Partnership

John Lewis now plans to launch a ‘school of service’ open to all partners to help them refresh their customer service skills.

This investment in customer service has proved crucial in helping the partnership adjust to the rapid shift to ecommerce brought about by Covid-19. Whereas pre-pandemic £6 in every £10 spent online with John Lewis was driven by its shops, this ratio has fallen to £3 in every £10.

John Lewis sales declined 4% year on year in the 53 weeks to 30 January, down 59% in store, but up 73% online. During the second half of the year, online growth “more than compensated for the closure of stores”, with sales up 1% on the previous year. The brand had its biggest ever Black Friday and Christmas for online sales.

For Waitrose, like-for-like sales rose by 10%, despite the supermarket’s relationship ending with delivery specialist Ocado on 1 September. A trial with Deliveroo, allowing customers to have products delivered in 30 minutes, helped attract younger shoppers, many of whom were new to Waitrose.

Furthermore, the supermarket’s ecommerce site has grown fourfold since February 2020, taking it to around 240,000 orders a week, and now represents a £1bn sales business.

This significant shift to online, accelerated by the pandemic, represents big changes for the business compared to 2019. Whereas prior to the pandemic John Lewis sales were split 58% in-store, 42% online, this has flipped to 75% online, 25% in-store. Likewise, while pre-Covid 95% of Waitrose sales were made in-store, now on average 14% of sales come from ecommerce.

Ramping up investment

The investment in customer service and wider shift to digital comes amid plans for the partnership to invest £800m this year to support its turnaround strategy, a 40% increase on recent years.

By the end of spring, John Lewis will have introduced 80 new fashion and beauty brands, pitched as affordable, appealing to the target customer and with an element of exclusivity.

The retailer is poised to launch an own brand range of baby car seats, strollers, prams and accessories, after seeing new baby searches online surge by 280% in December. There will also be a new phase of furniture rental services, after a trial with platform Fat Llama saw all products rented out within 48 hours, and the release of a capsule collection of one-off vintage pieces.

The John Lewis and Waitrose brands want to become more closely connected.

Wicks also pointed to the “outstanding” impact of the partnership’s Channel 4 sponsorship, which drove a 100% increase in people looking for its products online. In addition, the organisation praised the impact of its ‘Give A Little Love’ Christmas campaign, which raised £3m for charities FareShare and Home-Start to help families at risk of food poverty and parents in need.

From a wider, strategic perspective the partnership is targeting diversification. By 2030, it wants 40% of its profits to come from areas outside retail, namely financial services, housing and outdoor living. Describing financial services as a “really exciting opportunity”, last year John Lewis launched a new flexible home insurance product and interest free credit service.

While the business is attempting to strike an upbeat tone as it targets growth, the reality is investment sits against a wider target to reduce costs by £300m a year by 2022/23. The partnership’s 2020 loss, for example, is associated with costs of £648m caused in large part by the write down in the value of John Lewis shops owing to the shift to online, as well as restructuring and redundancy costs.

Likewise, the company received £190m in government support, a mixture of business rates relief and furlough support used to “protect the business” and avoid putting more jobs at risk. John Lewis does not intend to repay that support at present, given the economic environment remains “extremely uncertain”, and plans to accept the business rates relief made available from April to June.

Partners will be hoping the raft of growth targets and cost-saving measures will get the company back on track given John Lewis says it will only restart the bonus programme once its profits reach £150m “on a sustainable basis”. That does not look likely to happen this year, as the company is hoping to reach profit of £200m by 2022/23.