The John Lewis train rolls on but warns of bumps in track ahead
The middle classes' favourite retailer shrugged off talk of a double-dip recession yesterday, posting strong growth in first-half sales and profits.
The employee-owned John Lewis Partnership unveiled a buoyant performance at both its Waitrose grocery chain and the John Lewis branded department stores.
But with fears mounting over the impact on consumers of the Coalition's planned spending cuts and tax rises, the group warned of "more challenging" times to come despite sales at Waitrose rising by 8.9 per cent (3.9 per cent on a same-store basis) and those at John Lewis increasing by 11.7 per cent (8.8 per cent same-store) during the first six weeks of the second half of its financial year.
Charlie Mayfield, the chairman of John Lewis, said measures taken during the recession were starting to benefit the business, and had helped drive a 28-per-cent rise in pre-tax profits to £110.5m in the six months to 31 July.
The figures and relatively upbeat tone of the partnership stand in stark contrast to the picture given last year, when the operation was struggling against severe headwinds generated by UK's economic turmoil and the decision by many consumers to cut spending and rein in their household debt. Earnings at that time had slumped by a fifth and the department stores were particularly hard hit – their operating profits halved.
This time Mr Mayfield said: "This has been a strong first-half performance by the partnership. We took decisions during the recession to invest in existing shops, in new formats, in multi-channel and in "value" and we are now seeing the benefits coming through. Waitrose has delivered consistent and significant outperformance of the market. This has funded a range of investments for the future, including the successful marketing campaign with Delia Smith and Heston Blumenthal, the launch of new formats and encouraging results from strategic partnerships."
These advertisements, said Mr Mayfield, generated 370,000 new customers in just eight weeks. Waitrose's sales growth of just over 11 per cent also comfortably beat the market average of just 3 per cent. Mr Mayfield said of the department store and online operations: "John Lewis traded well ahead of expectations, with johnlewis.com growing at twice the market rate and excellent growth in fashion." Overall sales at the partnership grew 12.4 per cent to £3.8bn. Mr Mayfield also said that a total of 1,900 new jobs were created across the operation.
However, the partnership still has to grapple with a substantial funding "black hole" in its pension scheme. At the start of the year this stood at £904.6m. However, a one-off cash contribution of £150m in March and the Stock eExchange listing of online grocer Ocado in July – which crystallised the pension fund's equity holding – generated a further £100m. At the end of July the pension fund accounting deficit still stood at £567.9m, although that was £336.7m less than the figure for January. The partnership said that talks were continuing with scheme trustees ahead of the forthcoming three-yearly valuation.
John Lewis might be warning of "challenging" times to come, but the company's results yesterday were yet another feather in the cap of the mutual movement, which appears to be staging a mini revival after years of retreat.
The group – owned by its employees – outperformed its plc counterparts, despite or perhaps because of its lack of access to the stock market's ready supply of capital. It is not the only such business that has demonstrated the benefit of being owned by people with rather longer time horizons than those who hold the shares of companies listed on the Stock Exchange.
For the first time in years, they are about to be joined by a newcomer after Toby Blackwell pledged to emulate John Lewis by handing the bookseller that bears his name to his staff.
And it's not just in retail. Nationwide, the building society owned by its savers and borrowers, needed neither the help of our Government (Lloyds, RBS), that of Qatar (Barclays), or even its existing investors (HSBC) to pull it through the credit crunch. It even managed to rescue a couple of smaller rivals. Things have become tougher since, as margins have been squeezed and banks have engaged in a cut-throat battle for deposits as they try to shore up their capital bases. But Nationwide has the ability to weather such a storm in relative calm while others might panic.
The Co-op, also customer-owned, is another mutual to emerge from economic turmoil in rude health. Its retail division has taken over Somerfield, while the banking side saved Britannia Building Society. Perhaps this is why a new Oxford University report talks up the benefits of the sector and calls for the creation of a "minister for mutuals" to help to promote it, saying it helps "to create a more stable and robust financial services sector with a greater diversity in attitudes towards risk". Quite.
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