Is John Lewis on the right track to catch up to M&S?

John Lewis Partnership is making headway on its turnaround plan as the employee-owned business reported its profits had tripled in the last year to £126m.

The figure might be a promising sight following three successive years of losses, but recently appointed chair Jason Tarry warned the business still has “a lot of catch up investment to do” across its store estates, supply chains, technology and overall efficiency.

By Tarry’s own admission, the high street stalwart still has a long way to go before it can celebrate – especially as it claims its “on track” to meet its £400m profit by 2026 target that it set itself five years ago.

The former Tesco boss, who replaced Dame Sharon White last September, might be tempted to take a leaf out of rival M&S’s playbook, which has been reaping the benefits of its transformation under the guidance of Stuart Machin and Lord Rose.

John Lewis’ £12.8bn in sales may be in touching distance of the £13bn M&S reported in its most recent financial year – but the Partnership is still a long way off catching up to the £672m pre-tax profits its closest competitor reported.

The department store’s executive director Peter Ruis has previously joked “it’s been a bit Blur v Oasis in terms of M&S and us” – so do the Partnership’s latest results set the stage for this rivalry to ramp up?

Transforming the store experience

The Partnership has invested millions of pounds into turning its John Lewis and Waitrose stores into desirable places for its customers to shop again.

The department store chain spent a whopping £150m last year on upgrading its estate, which saw the introduction of new headsets for partners in stores, improving its customer experience offer and the large scale refurbishment of its beauty hall at its Oxford Street flagship.

Ruis says the modernisation of beauty halls at its stores in Cheadle and High Wycombe are already having a material impact, with sales growth in High Wycombe rocketing from 3% to 25% after the overhaul of its beauty hall.

The retailer is hoping to replicate the growth this year by upgrading the beauty halls at its Bluewater, Liverpool and Solihull stores, as well as making further improvements across its fashion, home and tech departments.

“Every single store will be touched,” Ruis confirms.

Marks & Spencer is underway with a three-year £500m store renewal programme, which includes the opening of 20 new superstores and the launch of new formats, including the group’s first clothing-only store in Battersea.

Better products at better prices

John Lewis has also been working hard to improve its fashion credentials in the last 12 months as rival M&S reaps the benefits of its style transformation, which delivered a 1.9% uplift in like-for-like sales over the Christmas period, ahead of the wider market.

In a bid to drive similar momentum, John Lewis introduced more than 200 third-party brands across the business last year and has added a further 49 fashion brands to its roster in time for the upcoming spring/summer season.

Fashion sales were “well over a billion pounds” last year, says Ruis, sharing that “menswear had a record year, kids had a really good year and womenswear was above the market [but] slightly more mixed”.

John Lewis is also banking on the return of its Never Knowingly Undersold slogan to help boost its value credentials and customer proposition in the year ahead after it reinstated the price promise last September.

Ruis says its NKU pledge “proved the catalyst for our second half turnaround. We’ve calculated incremental revenue of around £112m through higher volume and increased traffic, with an additional 100,000 unpaid web visits per week through SEO and direct traffic”.

Winning shoppers at Waitrose

The Partnership is also reaping the benefits of its ongoing investment into its Waitrose brand, with the upmarket grocer enjoying a 4.4% increase in full-year sales to £8bn and a 5.3% like-for-like growth over the peak Christmas period.

“We’ve had a very successful year in our mission to transform and modernize business. We’ve grown sales volume, customer numbers and customer satisfaction,” notes executive director James Bailey.

The supermarket boss is confident the business can sustain the growth as “the majority of it is coming from volume”.

Waitrose spent £61m into lowering its prices last year and Bailey says that own-brand sales are up nearly 6% year on year, with its No1 premium range, which was relaunched in September, up 40% in the final quarter.

The retailer also refurbished 14 of its supermarkets and opened its first convenience store in six years in London’s Hampton Hill as part of a £1bn commitment to its brick-and-mortar estate.

“The pace of the roll out, especially in renewing our existing stores, will increase significantly going forward,” Bailey says.

The supermarket also reported that on-demand grocery sales had skyrocketed 110% in the year as it extended opening hours for those ordering via Uber Eats and Deliveroo.

Bailey says the grocer is “winning the battle for customers” as Waitrose posted its 12th consecutive quarter of customer growth.

“It’s our strategy of retailing well and focusing on what makes us different is paying off,” he explains.

Waitrose doubled its adjusted operating profits and margin last year to £227m and 3%. However, it still has a way to go to catch up to M&S’ Food profit of £395.3m and 4.38% margins.

Staff pay

Despite the Partnership’s positive trading update, the business confirmed that it would not be handing out partner bonuses for the fourth time in five years.

“The priority for us at this stage in the transformation is to focus on closing the gap on base pay because when we talk to Partners, what they want to do is make sure that we’re helping them every month, not just once a year, and closing the gap against the market from a base pay perspective,” says Tarry.

He declined to comment on whether the business would look to reinstate the bonus again next year – “it’s too early to talk about that” – but assured that staff will be rewarded again in the near future.

“I’m determined to pay a bonus as soon as we possibly can,” he promised.

Instead, John Lewis is choosing to spend another £114m this year to raise the hourly rate for its store employees to £12.40 outside London and £13.85 within the M25. Those in specialist roles will earn £13.39 per hour, increasing to £14.96 in London.

It takes the total amount spent on increasing staff pay over the last couple of years on increasing its pay rates to £230m.

M&S has invested heavily in its people package in recent years, introducing flexible working patterns for its store staff alongside and £5m investment to enhance its maternity, paternity and adoption policies last year.

Earlier this month, the high street giant also unveiled its ‘biggest-ever investment’ in staff pay, with pay for store employees up 26% since Stuart Machin’s appointment in 2022.

The bonus might not be back, but the mood across JLP’s leadership team is upbeat, and there is an air of confidence that the business is pulling the right levers to drive growth. As the group ramps up for further investment across both John Lewis and Waitrose, the stage is set for its rivalry with M&S to reach new heights.

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