John Lewis has put its Never Knowingly Undersold (NKU) price promise under strategic review as the high street department store’s poor performance continues to weigh down on the rest of the business.
While profits at its sister brand Waitrose were up 4.7% in the results for the year ending 25 January 2020, profits at John Lewis slumped by 65.6%. That means profits at its owner, the John Lewis Partnership (JLP), were down 23% to £123m, marking the third consecutive year of decline.
That has prompted new chairman Sharon White to launch a review into the business, including the suitability of the price promise. While she believes value is a key part of the John Lewis brand, she admits NKU may need to be “modernised”
“On NKU, the review will be looking at how we keep the really strong quality/value proposition,” she said, speaking on a results call this morning (5 March).
“That’s a real sweet spot for us. We’ve had fair value as part of our proposition for almost 100 years and fair value will continue to be part of our proposition going forward, whether that’s in a more modernised form or not.”
The partnership’s former chairman, Sir Charlie Mayfield, defended NKU in his final results call in January, saying it continues to play an integral role in driving loyalty and building lifetime customer value. However, there have been mounting questions over the scheme, particularly with so much discounting by high street rivals.
NKU already does not operate as a blanket price promise, with John Lewis caveating that “businesses that trade on a different basis” to it are “not deemed comparable”. That includes online-only retailers, as well as companies that might be in administration or closing down.
We’ve had fair value as part of our proposition for almost 100 years and fair value will continue to be part of our proposition going forward, whether that’s in a more modernised form or not.
Sharon White, John Lewis Partnership
White’s strategic review, which should be completed by the autumn, will focus on strengthening the core retail business and developing new services outside retail. She is also looking to put a stronger focus on quality and value, as well as a greater emphasis on sustainability.
However, she has ruled out splitting the two businesses or getting rid of one of the brands. Further store closures and downsizing some stores is also likely, with another three Waitrose locations set to close this year.
“We need to reverse our profit decline and return to growth so that we can invest more in our customers and in our Partners,” White said. “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.”
White would not be drawn on plans for her senior management team. There is a particular lack of clarity in marketing following the departure of John Lewis’s marketing boss Craig Inglis and its managing director Paula Nickolds (who was set to become the partnerships’s head of brand).
Mayfield had planned to bring the management teams of the two businesses together, with the loss of about a third of roles centrally. With further plans to bring the two brands closer together, especially in using Waitrose to boost the performance of John Lewis, White will need to decide whether to have separate leaders and marketing teams for each brand.
GlobalData lead analyst Sofie Willmott says: “The wheels are already in motion to bring the two brands together with the aim to reduce costs and boost profits for the partnership but it remains to be seen how closely they can be merged given the very different purposes (yet same culture and ethics) of the organisations.
“A separate leader of each brand would seem logical given strong leadership experience of both a grocer and a non-food retailer will be difficult to find.”