UK Update: Retailers John Lewis vs Marks & Spencer

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Middle England — that often-cited bellwether of the UK’s consumer likes and dislikes — has fallen out of love with John Lewis. And to make things worse, across town, shoppers have rediscovered and reengaged with another previously fallen National Treasure, Marks & Spencer

To reverse its long-running decline in fortunes, M&S embarked on a comprehensive strategic reassessment, focusing on three core areas: product range, store estate, and digital transformation. The company streamlined its apparel and home range, shedding underperforming lines and emphasizing customer-centric design and quality.

Just in from London: The problem with being a National Treasure is that everyone takes your mishaps very personally. Just ask the embattled Chair of John Lewis Partnership, Dame Sharon White, who must be wondering if she can catch a break right now.

Poor results at John Lewis Partnership — the parent of the UK’s John Lewis department stores and upscale grocery chain Waitrose — have been compounded by the defection of several senior execs, a barely passing staff vote of confidence on her leadership and even open letters to the media and social platforms concerning rumors that the company’s unique partnership model may be changing.

Dispatches from Middle England

Middle England — that often-cited bellwether of the UK’s consumer likes and dislikes — has fallen out of love with John Lewis. And to make things worse, across town, shoppers have rediscovered and reengaged with another previously fallen National Treasure, Marks & Spencer.

At heart, the contrasting fortunes of these two department stores and food retailers seem to be about one losing and the other rediscovering its soul. But this being retail, there’s more to it than that. So, just what has gone wrong at John Lewis, and what can it learn from how M&S has come back from the brink?  And what can you learn from their experiences?

Missteps at John Lewis

Once John Lewis could do no wrong with its famously tear-jerking Christmas ads and its renowned customer service. But gradually its uniqueness has been chipped away. First, it gave up on its long-held promise to “never knowingly be undersold,” with social media channels full of anecdotal comments by customers distinctly unimpressed by the in-store service. In addition, a number of stores –- some only recently opened –- have shuttered, while supermarket arm Waitrose was caught off guard by the speed and severity of a cost-of-living crisis which has hit UK shoppers especially hard.

Rising inflation, extra costs and soaring homeownership mortgage rates have squeezed the pips of even Waitrose’s most affluent customers as they have watched their weekly grocery bills skyrocket.  While Waitrose has shaken up its management team and invested in price reductions, it may be too little too late.

John Lewis Partnership has also appointed its first group chief executive. Former Hovis (famous for its bread) and Burger King executive Nish Kankiwala joined as a non-exec director at the John Lewis Partnership in April 2021 and took up his new CEO role on March 27 this year, just as the staff-owned partnership announced its second-ever full-year loss.

High Profile Departures

Compounding the results turmoil, the management team has also seen some high-profile departures. Department store head Pippa Wicks, the architect of the group’s small stores strategy, a potential growth engine for both businesses, unexpectedly left, replaced by retail director Naomi Simcock.

John Lewis has also pushed ahead with private rental apartments above Waitrose stores and other real estate deals as a new revenue stream and has struck a $600 million deal with investment giant Abrdn for 1,000 new homes. However, this is a completely new venture for the business, albeit that the UK has an ongoing housing shortage.

However, property director Chris Harris has also handed in his resignation (although he will remain at the retailer until November). Crucially, Harris had been pivotal in the retailer’s plans to expand into private rental housing, with an ambitious target to construct 10,000 new homes over the next decade.

He also oversaw the shuttering of 16 John Lewis stores and a 10 percent reduction in the footprint of the Waitrose estate as the group rightsized its business. To add to the defections, chief operating officer Andrew Murphy is to depart the business this summer.

White has come under heavy criticism during her tenure, especially for mooting a possible sale of a stake in the business, which is owned by its ‘partner’ workforce.

Recently, White scraped through a vote of confidence in her leadership but saw a backlash as partners expressed a lack of confidence in previous decisions following annual losses of nearly $300 million posted in March, with the company conceding that it anticipated additional job losses further down the line.

Five-Year Plan

White has pledged to return the retailer to profit before 2026, adding that staff bonuses — paid out annually and a staple of the workforce’s wages but now missed for two of the last three years — would only be reintroduced “when affordable.”

White’s five-year plan was initiated back in 2021 and is still on course to “get the partnership back to sustainable profit” she insists. The company has also had to defend its plans for building rental homes after recently filing planning applications for projects in west and southeast London, and as it prepares to manage tenancies at three sites built by other developers.

“We are absolutely committed to this,” said Nina Bhatia, strategy director at the staff-owned group. “Far from redirecting from retail ambitions, the projects above Waitrose stores enhance the quality of the retail stock and we are not only creating a new revenue stream and asset base but improving the quality of the retail experience in those stores.”

Meantime, speaking at the Employee Ownership Association recently, she explained that the plan could still require an injection of external investment but stressed that the retailer’s famous employee model would not change, as she affirmed that employee ownership was “a given” for the future.

However, pointing to its previous partnership with fulfilment specialist Ocado (which partners with Kroger in the U.S.), she added: “The tragedy would be to walk past what needs to be done to ensure the Partnership has the fuel it needs to invest, transform and grow.”

But there are vocal dissenters.

Former John Lewis boss Andy Street — now Mayor of the West Midlands — said that abandoning the partnership would be a “tragedy,” while UK retail luminary Mary Portas wrote an open letter proposing alternative ways forward for the retailer and added that it was treading on “precarious grounds.”

M&S Goes Back to the Future

How White must wish for the calm waters in which Marks & Spencer CEO Stuart Machin appears to be swimming. Machin cuts a somewhat unlikely figure when it comes to the big guns that tend to steer big retail turnarounds, more Harry Potter than Dirty Harry. But his slightly homey approach and demeaner appear to be paying big dividends.

To reverse its long-running decline in fortunes, M&S embarked on a comprehensive strategic reassessment, focusing on three core areas: product range, store real estate, and digital transformation. The company streamlined its apparel and home range, shedding underperforming lines and emphasizing customer-centric design and quality.

Simultaneously, M&S restructured its store estate, optimizing its footprint and closing underperforming locations. The company has also made significant investments in digital capabilities, enhancing its online presence, and expanding its delivery options.

Machin has not taken the decision to close stores lightly — many of its full-line department stores are important anchors for British Main Streets. He told delegates at the World Retail Congress in Barcelona recently: “Closing stores is a big decision, which always makes the news headlines. But we have also been opening new stores. Those decisions are important as we try and modernize the business.”

Strong Financials at M&S

M&S’s turnaround efforts have yielded impressive results. In its latest financial reports for the year to April 1, profits pre-tax and adjustments hit $615 million, down slightly year on year. But when around $76.5 million of business rates relief (UK government tax refunds on real estate) was taken out of last year’s figures, it’s up 4 percent.  Pre-tax profit surged 23 percent while group sales jumped 9.9 percent to $15.3 billion.

Apparel and home sales — which had long been a drag on the business — rose 11.5 percent to $4.7 billion, while food sales jumped 8.7 percent to $9.2 billion. Physical retail sales increased 14.9 percent, while online was up 4.8 percent, driven by “strong growth” in click-and-collect.

M&S has also invested heavily in its online platform, which has enabled it to reach a wider customer base, driving significant ongoing growth in online sales, and prioritizing operational efficiency and cost management. The company implemented rigorous supply chain changes, including improved inventory management and a more responsive sourcing model, streamlining operations to not only reduce costs but achieve greater operational agility.

However, Machin is not a technology-for-the-sake-of-it type of guy and in Barcelona he cautioned against employing technology without considering the consumer. “I’m the person challenging technology,” he said. “When it comes to supply chain, I want to move fast but I worry about whether our colleagues can keep up. Then I look at the Sparks (loyalty) card moving to the app only, and I worry about our customer and the impact of removing that card. Our customer panel was also confused about whether Sparks and the app were separate.”

Back to Basics

But above all, Machin has got M&S back to sticking to its knitting. “It’s about protecting the magic of our heritage. We should be the most trusted brand in the UK, putting product at the heart of everything we do,” he said. “Some of the bold things we try and do mean remembering it was never about premium, we need to go back to our foundations of great product at the best price.”

That might be a good lesson for White. Neither she nor her recently appointed group chief executive come from a retail background and while that should not preclude their positions, there is a sense that they don’t have an instinctive feel for the business.

And that’s not good news if you are a National Treasure.

The Takeaway for Retailers

JLP is asking its customers and industry observers to believe in the journey. But at a time when its retail basics are clearly not right, as anyone that walks one of their stores can attest to, that message triggers disbelief. Or more like a suspension of reality.

Instead, it looks suspiciously like JLP is trying to compensate for its flagging retail performance by trying out something new. Diversification can work, but normally only when a business is on it’s a-game across its core offer.

By contrast, right now it seems pretty clear that M&S has rejuvenated its sense of self and returned to delivering what its customers expect. That’s great food with a strong provenance story, plus quality apparel at mid-range prices. That might not seem super-exciting, but it’s right on the money for those influential Middle Englanders and a powerful message for retailers everywhere.

Endnote: Figure out what you’re good at and do it really well.

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