Andy Street: 'I was captivated by the magic of the Partnership'

John Lewis's managing director explains why the 'saintly' store is doing better than most during the Christmas period
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'So much fish," exclaims Andy Street: "We'll never make a profit selling portions like that." The young waitress, who serves him the plate piled high with sizzling sea bass, is taken aback, but tells him politely yet firmly that this is the chef's normal portion.

Street explains that he was only joking. But it's too late – the damage has been done. "You're going to quote me on that, aren't you? " he says, roaring with laughter.

He's right – I am, because it's refreshing to hear Street showing profit is not a dirty word even for the saintly John Lewis – admired by all for its enlightened co-ownership philosophy – and that he has such a sense of fun.

We're having lunch in The Brasserie restaurant on the third floor of the flagship store on Oxford Street, not far from where the first store opened in 1864. Street is the managing director of the 35 John Lewis department stores and has just come from a helter-skelter morning of meetings with the finance director for a Christmas sales update: "Flat, but not apocalyptic," he says. "Thankfully, nothing like 2008 when sales just fell off a cliff."

"But there's no question that people are spending less – and buying differently. They are being careful, looking for quality and the provenance of goods. British manufacturers are having a good time, with products like Barbour selling well. There is a drive to value and this mood fits with the JL brand – quality at a good price. Instead of spending £200, people are settling on £150, but they are buying." What Street has to say about trading is always carefully watched by the City's scribblers, as who goes shopping and how much they spend at the country's favourite shops is one of the best barometers for the high street, giving a clue to the economic fate of the nation. John Lewis has been publishing weekly sales figures since 1929, as the founder, John Spedan Lewis, wanted his staff to know how trading was going. This means that up-to-date sales figures provide an almost live feed for analysts crunching numbers on the retail sector.

To date, John Lewis is outperforming its rivals – Street says November sales were down about 0.5 per cent compared to the same month last year. This is better than the dreadful figures reported by the British Retail Consortium last week showing that November sales fell by 1.6 per cent on a like-for-like basis on last year's – and were the lowest for six months. In the five-week Christmas period last year, the John Lewis stores saw £545m of sales, and Street is crossing his fingers that it will be higher this year. He puts JL's robustness down to its relentless "Never Knowingly Undersold" campaign – coupled with the tear-jerker of a Christmas ad, now a YouTube hit, which shows the little boy who can't wait to give his parents his gift.

There's nothing new about price-matching –it's been going on since the 1920s and is today run by a dedicated team of 41 Partners out price checking in rival stores against JL products. But over the last year or so, the prices have been so competitive that there has been a severe squeeze on profits as the results for the first six months of the year showed operating profits were down 55 per cent to £15m.

Behind the scenes, though, Street says the big success is JL's online shopping service, where sales are up 21 per cent, year on year, and growing fast, at about 25 per cent a year, with about 150,000 products available. Then there's the "click & collect" service – where you can buy online and pick up the goods in the shops, which is showing a 75 per cent rise on the year.

The web is also JL's vehicle for experimenting with new overseas markets. This is being tried out in 33 countries and is proving popular with customers in the US and Australia, and other markets with big British expat populations – "countries where they have a colonial taste and knowledge".

Is this the first step for John Lewis opening up overseas? "Never say never, but opening overseas would be a big move for us. Online shopping is a good way for us to test the markets first.

"What is interesting about working more with the web is how sophisticated the British are at online retailing. We have some of the best online retailers in the world and we also have some of the best retail technologies, web designers and distribution systems. We'll see how the JL brand works online first before deciding."

In person, Street is as easygoing and as delightfully earnest as he was in the BBC's fly-on-the wall Inside John Lewis documentary that proved such a hit last year. Most of the firm's partners were against the idea of letting the BBC inside to film but Street was in favour; wanting to demonstrate to the outside world how the famous partnership works in practice. The BBC couldn't have chosen a worse time to start its 100 days of filming – just as the financial crash began to bite in October 2008. But Street was delighted with the result: "I was determined to do it. My view was that it was important to show the character and magic of the organisation. There was a happy ending; the film did us proud." And it boosted sales.

One of the joys of the programme was hearing Street talk about his pay; explaining why he's perfectly happy with his £500,000 or so salary, a fraction of the multimillion packages paid to peers such as Marc Bolland of M&S. He's still happy today with the amount and has little time for the excessive pay awards given to so many corporate executives. "Business leaders of enlightened companies should look closely at what they are paying the top executives, look at the bonuses and incentives plans. So should shareholders. It's the shareholders who are responsible for establishing what is appropriate pay, but I don't think government should intervene."

However, he does believe that a sense of fair pay is crucial if the business world is to regain its reputation, lost after the financial crash. "What is really depressing is the jealousy which the fat cats – and the bankers – provoke among the public. That is bad; not good for anyone in business. What can we do? Perhaps the most important thing the politicians can do is to find ways to improve bank lending to the SMEs which the country depends on for growth."

The John Lewis Partnership is clear about pay; it's enshrined in the constitution that the chairman – currently Charlie Mayfield – must not earn more than 75 times the average of the lowest-paid worker. (For the record, Mayfield earned £808,000 excluding bonus, in the year to January.) So top executives, such as Street and the managing director of the 271 Waitrose stores, Mark Price, will always earn less than this multiple. Profits are agreed only after the partnership board decides how much goes into the pension scheme, and then it declares its profit level, of which about half goes to pay bonuses to the 76,500 permanent staff with the rest being reinvested in the business.

Street has no doubt this sharing has a positive effect on the business, one that permeates to the customer: "There is an innate sense of fairness that there should not be extremes in pay. There's magic to this organisation; Spedan Lewis always said it's not enough to run a successful business, but that workers should share in the success. That's why there's a cohesion here I don't see in other businesses."

If the philosophy is so compelling, why aren't more companies following John Lewis's style? For the first time in our meeting, Street pauses to reflect: "It would take exceptional philanthropy for a successful entrepreneur to give away their company to the employees. It's also made more difficult because the government taxes those who do in a penal way."

Instead, he suggests, we should ask why it is that JL has been the only co-owned company which has been able to grow to such a scale. His answer is that JL is unique in the way the executive manages the business in a decisive way. "It is quick and bold. It is accountable to the partners for how it leads. Bottom line is we do not suffer the normal difficulties of normal cooperatives, and we don't even pretend that decision making is perfectly democratic – we don't go back to the parliament every time. Getting this balance right is very difficult – hence why there are not more like us. In many ways, we works like our rivals, like Tesco say, in that the executive takes the big decisions. "

Street won't let on whether those rivals have tried to poach him. But they would have a tough job. I suspect you would have to carry him out feet first if he were to leave the company he joined after Oxford, starting out on the giftware counter at the Brent Cross store: "I've been captivated ever since."

Humble Beginnings

From drapers shop to the UK's top 10 retailer

1864: John Lewis opens a small drapers shop in Oxford Street

1885: Birth of John Spedan Lewis, below, his son

1905: John Lewis buys control of Peter Jones

1914: John Lewis hands control of Peter Jones to John Spedan Lewis

1919: John Spedan Lewis sets up a staff council

1928: John Lewis dies, leavingJohn Spedan Lewis as owner of both stores. He converts firm into a public company, John Lewis & Company Limited. First constitution is published

1929: First Trust Settlement created: the John Lewis Partnership becomes legal

1937: The Partnership buys Waitrose, a chain of 10 shops

1940: The Partnership buys Selfridge Provincial Stores group

1950: Creation of the second Trust Settlement

1955: John Spedan Lewis retires as chairman and is succeeded by Bernard Miller

1992: 100th Waitrose opens

2000: Launch of Ocado, the online delivery service, part-owned by the Partnership

2001: Launch of 2007 Sir Stuart Hampson retires as chairman; Charlie Mayfield, left, succeeds

2011: John Lewis in UK's top 10 retailers