INTERVIEW The man in charge of the John Lewis Partnership tells James Silver how his company is bucking the economic trend to be Britain’s retail success story
When the John Lewis Partnership announced its most recent results in March, they appeared not only to defy the doom-laden headlines, which have plagued the British high street since 2008, but economic gravity too. Group gross sales? Up by 9.3 per cent to £9.54 billion. Group revenues? Up by 9.1 per cent to £8.47 billion. Group operating profits? Up by 15 per cent to £452.4 million. And so it went on.
Partners across the John Lewis chain, from those filleting haddock on the fish counter at Waitrose to the executive floor at the partnership’s London HQ tower, shared a bonus kitty of £210.8 million, amounting to 17 per cent of each employee’s salary, which is the equivalent to almost nine weeks’ pay. Not bad in the midst of one of the stickiest periods most “traditional” retailers can remember.
The person widely credited with overseeing the group’s quiet revolution is its poised and patrician executive chairman, 45-year-old Charlie Mayfield.
In his office far above Victoria’s snarling traffic and hard-eyed commuters, Mr Mayfield reflects on an industry in the grip of a perfect storm: a flat-lining economy combined with unprecedented technology-led upheaval.
“People tend to focus on the obvious changes, such as the importance of the online channel, but [what’s going on now] is really much more about how consumers are changing the way they live their lives and how societies are working in a different way,” he says.
“The retail sector has always been there to serve society, which is why, as technology shifts the way people behave, it has a very significant bearing on retail. On top of that, if you had a big change in customer behaviour in a buoyant economy, then the positive momentum would have muted some of the harsher effects.
“But when you have the opposite [conditions], those effects are much more acute and happen faster than they would in more benign circumstances. To that you can add a third dimension with things like what’s happening to the cost of goods. So you’ve got all these things going on and they’re all impacting on retail.”
So much for the bigger picture. But how does he account for the fact that, while so many retail brands are struggling, with household names even going to the wall, the John Lewis Partnership has now gained market share four years in a row, opened 19 new Waitrose branches and four new John Lewis shops last year, creating 3,800 jobs in the process and, most impressively of all, added nearly two million customers across the group? “It’s partly because both brands – John Lewis and Waitrose – have taken really determined steps, over time, to improve the appeal and the accessibility of what we do,” says Mr Mayfield.
“You can buy almost anything you want somewhere like Amazon. One of the things technology can do most effectively is commoditise products, which typically drives pricing in one direction. So no longer can retailers just be the distributers of other people’s products.
“We are now competing in a world in which it has never been more important for a retail brand to design, originate and source unique products, which are highly valued by customers and that they can’t get anywhere else. That’s why we are putting more and more effort into both Waitrose and John Lewis so that we can do exactly that. In Waitrose, last year, the team launched more new products than ever before – 5,000 [of them] – and we’ll do at least the same this year.
“But increasing the appeal isn’t simply about enhancing the offer, it’s also about removing the barriers and we have been doing [that, too] in a very systematic and determined way,” he says. “We’ve had to really persistently get across this message on value. In Waitrose, and in John Lewis, that has been a constant part of our campaigns over the last several years – for Waitrose, particularly in the last five years.”
Yet, while the supermarket’s value Essentials range remains vital to the group’s manifestly successful strategy, Mr Mayfield also pinpoints the high-quality end of the spectrum as a sweet-spot for Waitrose. “We are going to really lean into the value-added side and we are going to develop ranges which are truly the antithesis of a commodity product,” he explains.
“Some of the work we have done with [chef] Heston Blumenthal is an example of that. In John Lewis the design collaborations with the likes of Alice Temperley and the House range of homewares are also examples of a retail brand taking much more control of the product that we sell. We sell lots of brands and we’re delighted to. But just as important now is the fact that we’re developing our own.”
The group has also increased access by opening more bricks-and-mortar stores in places where it previously had little footprint and, crucially, by rapidly expanding the digital side of its operation. “The growth of our internet business has been hugely important,” says Mr Mayfield. “For John Lewis it’s now 25 per cent of our business – from zero 12 years ago. That’s a huge increase and it is continuing to grow very fast. It means that the brand is just so much more available to more people.
“The other thing worth pointing out is that we’ve also done more to use both brands to make [the other] more accessible. The most obvious example is what we’ve done with Click & Collect, whereby you can shop online in John Lewis and collect in your local Waitrose shop. That’s been so popular because of its convenience for customers who have a Waitrose nearby. Of course, with 290 Waitroses there are more of them closer to customers than there are John Lewis shops [of which] we have 39.”
With online now accounting for a quarter of its business, at current trends John Lewis will soon approach a tipping-point, where it will be primarily an internet business. Similarly, although just 3 per cent of Waitrose’s total turnover is currently online, (by comparison, online accounted for 4.3 per cent of Tesco’s total sales in 2011-12), digital sales grew by 49 per cent last year. If online-only firm Ocado, which also delivers Waitrose groceries, is included in the supermarket’s digital figures, then the channel now accounts for 15-16 per cent of its business, according to numbers supplied by Mr Mayfield.
This inexorable shift to digital has been underpinned by a considerable feat of long-term investment and strategic planning, particularly focused on the partnership’s supply chain, just one of several areas where Mr Mayfield, a former British Army captain, who served in Northern Ireland and Germany, says the group has benefited from its employee-ownership model.
Plainly now on to one of his pet topics, he stirs on the sofa, passion surging in his voice. “The secret weapon of the John Lewis Partnership is that it can never be sold,” he says emphatically. “There is no exit; there is no sales option.
“When we began, we had 500 people, now we have 85,000, and we’ve always had to focus, not just on what we’re doing at that moment, but on the years ahead. In the kind of fast-changing world we’re seeing around us, that gives us a huge advantage. We started on this track of developing our online business 13 years ago and we’ve built up our capability year after year, where quite a lot of other business went in, found they were losing money and that it was more difficult than they thought, and came out again, before going in again, because they had to,” he says.
“The other side of it is more structural and strategic, [such as] what sort of supply chain you need. Over the last ten years, our supply chain operation in Waitrose and John Lewis has been transformed. You can’t turn that on overnight, because it [takes] tens of millions of pounds of investment. Our results today have come about precisely because of decisions we took years ago to invest in supply chain, not knowing precisely what the format of the operation was going to be like in the future, but knowing that we had to build it in a way that would anticipate, as well as we could, what the requirements of the business were likely to be.”
Today, those decisions – taken in the toxic aftermath of the 2000 internet bubble when scepticism about the viability of the web as a business channel was at its most widespread – have turned out to be pivotal to a group whose success is turning it into one of British retail’s greatest success stories.
To bolster his argument, Mr Mayfield cites the aforementioned Click & Collect, a free delivery service which promises to deliver an online order placed before 7pm to a customer’s nearest John Lewis Group-owned store by 2pm the following day.
“You can order in Aberdeen at 6.59 in the evening and collect it in the Aberdeen shop the next day any time after 2pm,” he says. “The logistics challenge which sits behind that means we have to pick, pack and get your product in a vehicle from our Milton Keynes distribution centre to Aberdeen in about two to three hours. And this is happening for many thousands of orders every day. To do that requires a level of investment and capability that we simply didn’t have ten years ago, but we certainly have it now.”
JOHN LEWIS PARTNERSHIP BY NUMBERS
Stores: 39 (John Lewis); 291 (Waitrose)
JLP gross sales: £9.54bn (2013)
Waitrose gross sales: £5.76bn (2013)
John Lewis gross sales: £3.78bn (2013)
Online annual sales growth (Waitrose): 49%
Click & Collect service: in all 39 John Lewis stores and 193 of Waitrose branches