New John Lewis strategy sees massive focus on own-brand fashion
John Lewis Partnership on Wednesday announced a major evolution of its strategy “designed to develop and strengthen the business”. And own-brand fashion will be a major part of this as its house brands’ growth outpaces other labels.
But it looks like it’s also committing itself to not over-expanding with one of the strategy’s key points including “focusing on differentiation, not scale”. That means an increased focus across the whole business on competing through differentiation and innovation.
The company has also announced that it’s maintaining its current, higher, level of investment in product and service innovation for longer. It will continue to invest at a rate of £400m-£500m per year and take further steps worth £500m over three years “to strengthen the balance sheet, while recognising the short-term pressure on profits.”
And it said that it’s putting its Partners (that is, its staff) at the heart of the strategy, “recognising and enhancing the role [they] play in the differentiation of both Waitrose and John Lewis.”
POSITION OF STRENGTH
The company made it clear that this isn’t a strategy born out of weakness but that it “starts in a strong position.” It said it “has two excellent brands in Waitrose and John Lewis with a proven capability to develop unique products that are highly valued by customers.”
The business has a store estate that is “better sized and better quality than its competitors, combined with a leading capability online. Through its partners - who are all co-owners in the business - the Partnership has a greater level of expertise and achieves higher service standards.”
So what does this all mean in practice? The focus on differentiation, rather than scale, comes as it’s "widely acknowledged that the retail sector is going through a period of generational change and every retailer’s response will be different,” it said. “We have clear plans to build on our strengths and to sharpen our points of difference. These plans include further investment in and development of unique products and service, together with a greater emphasis on own brand and innovation.”
And that certainly makes sense with the firm having seen strong sales in its still-new fashion own-brands in recent periods, even though fashion retail as a whole in Britain is facing tough times.
At the John Lewis department stores, the focus will be in three key areas - unique products, personal service and expanding into new services. Key to this is “supercharging women’s fashion, acquiring new niche brands, securing exclusives with international brands and significantly growing design capability.”
It said that customer reviews of John Lewis own brands this year exceeded that of other brands, scoring an average rating of 4.5 out of 5. Currently 30% of John Lewis’s sales are from products that are own-brand or exclusive. Its ambition is to increase this to 50%.
Its service will centre around creating “an exceptional experience in shops, empowering Partners through technology and investing in Partner skills.” Work has started to tap into the burgeoning customer demand for trusted advice and expertise in fashion and home. “This is a significant opportunity and will play a major role in our shift to personalised service versus ubiquitous transactional shopping,” the company said.
John Lewis will also expand beyond its stores and online into “new and enhanced services, with a focus on strengthening its position in the home services market and growing financial services." The acquisition of home improvements business Opun earlier this month is one step in this direction.
Service will also be key at Waitrose where the company will additionally boost its focus on health and wellbeing, “a fast growing category that appeals strongly to core customers.”
Clearly, this will all cost money, but the company has been working hard to ensure it’s in the right financial position to spend that cash, although it’s also reducing debt.
PROFITS TO SUFFER
But profits will take a hit. The company said half-year profits before exceptional items – which are always much lower and more volatile than the second half – will be “close to zero” this year.
The retailer also announced that it will take steps to strengthen its balance sheet by a further £500m over three years to invest in product and service innovation. “This will be achieved by rebuilding profitability at Waitrose, creating more value from the property estate, and conducting a review of the Partnership’s pension scheme.”
As far as the store estate is concerned (353 Waitrose and 50 John lewis branches), it “will continue to make adjustments to our overall estate, including exit or closures, but at a rate that’s in line with what we have seen over the last few years.”
And the move to put the Partners at the heart of the strategy means extra investment in them. For example, this year the average increase in total hourly pay for Partners who have worked in the business for more than one year was 4.5%. It will continue to invest in pay and has “set an ambition to make the Partnership one of the healthiest places to work by 2025.”
And from September, the two brands that make up the business will be known as Waitrose & Partners and John Lewis & Partners.
Chairman Sir Charlie Mayfield said: “The John Lewis Partnership is a unique business with different ownership, a different purpose and a different outlook to any of our competitors. As retail changes we need to tread a path that enables us to thrive as a business while building on the qualities that make us different. For us, the relentless pursuit of greater scale is not the right course. Our plans put differentiation, innovation and Partner led service at the heart of our offer. The measures that we have outlined today are an important next step in our strategy that will ensure we emerge stronger from this period of profound change.”
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