Four challenges Sharon White must address at John Lewis
Incoming John Lewis Partnership boss Sharon White will have a big job on her hands when she joins the retailer next month, as this morning’s trading update showed.
The department store issued a profit warning today and made the surprise announcement that John Lewis managing director Paula Nickolds will leave the partnership in February.
It also said might scrap its staff bonus this year for the first time since the 1950s following a slump in Christmas sales.
Read more: John Lewis issues profit warning as MD steps down
That’s all before former Ofcom boss White enters the business next month, with a mandate to shake things up in order to get John Lewis back on track.
“We get the sense that Sharon White will instigate a big change programme, which is perhaps long overdue at the John Lewis Partnership,” Shore Capital Markets analysts said in a note this morning.
Here’s what that programme could involve.
Replace John Lewis veteran
Today’s shock announcement that Nickolds is leaving the business means White has the task of filling the marketing and brand executive director role she was expected to take up under the new partnership structure.
Current chairman Sir Charlie Mayfield refused to be drawn on whether Nickolds had been pushed, saying the decision was reached by mutual agreement.
However her exit came about, she takes 25 years of John Lewis experience with her.
Meanwhile, Waitrose boss Rob Collins announced his resignation in October, and there is still a strategic director appointment yet to be confirmed.
Mayfield insisted that there is 100 years of John Lewis experience on the company’s board.
However, White, who has no retail experience, will be tasked with filling the empty roles created by the “Future Partnership” strategy shift.
That partnership combines the John Lewis and Waitrose management teams with a view to saving £100m by eliminating one in three senior roles.
It’s on White to make sure this new model is a success.
Read more: John Lewis, Ikea or Aldi: Which 2019 Christmas advert was the best?
Weigh up ‘never knowingly undersold’ promise
John Lewis Partnership prides itself on its longstanding price-match promise.
However, in an increasingly promotional retail environment the pledge is beginning to eat further into profit margins.
This morning Mayfield defended the strategy, saying: “Do you think it is viable for a retailer to be uncompetitive on price? The fact is that if you’re selling comparative goods, you have to be price competitive.
“Sometimes people feel we are victims of that policy… but that is really not the case.”
But it will be up to White to decide if the partnership should stick to the policy amid falling profits.
“Alongside other issues that new chair Sharon White will need to iron out, its ‘never knowingly undersold’ promise continues to erode margins as it seeks to compete on price with competitors that have leaner operations and lower overheads,” Julie Palmer, partner at restructuring firm Begbies Traynor, said.
“The rules of this promise may need to be reviewed and renewed if the retailer is to start turning around, and a savvy operator with Treasury experience like Sharon White may be just the kind of mind needed to do it.”
However, others said the price promise was losing relevance.
Peel Hunt analyst John Stevenson said: “The price promise, which excludes many online players, is not relevant to consumers, whose first place of price comparison is online.”
Reconsider advertising campaign strategy
Read more: John Lewis unveils excitable Edgar Christmas campaign
The John Lewis Christmas advert is released to hype and expectation each year.
However, the effect has failed to translate into sales as consumers’ television watching habits shift and more retailers wise up to the power of a heart-warming festive ad.
“Excitable Edgar did little to fire up Christmas sales with declines across non-food and a woeful performance in the online business which barely showed any signs of growth,” Retail Economics chief executive Richard Lim said.
White will have to revitalise the department store’s advertising plans, in order to keep up with social media savvy competitors.
Anusha Couttigane, principal fashion analyst at Kantar, said: “While the company’s Christmas mascot, the accident-prone dragon Excitable Edgar, was warmly received, the debut of the brand’s Christmas advert is simply not the event it once was.
“In the digital age of streaming and on-the-go entertainment, gone are the days of a prime-time TV debut going viral (historically during Downton Abbey or some other national favourite). The retailer needs to ensure it is positioning itself to reach its biggest opportunity customers through the right channels.”
Read more: John Lewis threatens to withold 20 per cent of service charges
Consider John Lewis store closures
John Lewis Partnership has demanded rent cuts from landlords in a bid to lower its overhead costs, but has not embarked on a store closure programme to match other struggling retailers.
The retailer shuttered seven Waitrose stores last year, and closed the first John Lewis store for 12 years last January.
“We are always looking at our estate and keeping it under review,” Mayfield said this morning.
Read more: Retail CVAs declined over 2019 as landlords push back against shop closures
However, when White joins the company next month, it is possible that she will ramp up that review to decide whether savings can be made.