Comment: Results mark another year of significant progress for the John Lewis Partnership
Despite extensive investments growth has been profitably delivered with underlying profit up by 10%. At a headline level this growth has been blunted by an exceptional item which, when taken into account, meant that profit fell by 4% on the year. That said, the exceptional – namely a £47.3m expense for holiday pay adjustments - is a genuine one-off and should not tarnish an otherwise sparkling set of results.
Coming off the back of a very successful few years, John Lewis has continued its run of outperformance. Much of this success can be put down to a simple formula: a clear and compelling proposition at the front end of the business supported by an efficient and robust infrastructure behind the scenes. That John Lewis has understood that these two components work hand in hand is a key part of its ability to drive growth across the business.
At the back end investment in areas like store refurbishments, a new web platform, enhanced warehousing and logistics, and new IT systems have all ensured that the ‘nuts and bolts’ of the business are in good working order and capable of supporting, as well as driving, growth. Indeed, across many of these areas it is fair to say that John Lewis is leading the retail pack in terms of the quality of its infrastructure. Without these, often significant, investments it is fair to say that John Lewis would have struggled to profitably grow as fast as it has without severely damaging parts of its proposition.
At the front end product, customer service and omnichannel are key components of John Lewis’ continuing appeal to customers: an appeal that has helped to deliver fairly balanced growth across all directors. This includes home which has been exposed to a market which, across the financial year, remained anaemic in terms of demand. Electricals has seen the strongest growth, thanks in part to heighted consumer demand for new technologies; its strong relationships with suppliers has ensured that John Lewis has the stock of the latest technologies as and when consumers want them. Fashion has also had a strong year, with new product boosting demand, especially within higher margin own label.
The changes at both the front and back end of the businesses owe much to John Lewis’ ability to think anew and act anew and to innovate in terms of what it’s selling and how it sells it. It would not be unreasonable to say that this innovative streak has been the lifeblood of the business over the past few years. It is, therefore, pleasing to see the launch of JLab which will act as an incubator for new technologies and innovations. This exciting new development should ensure that John Lewis continues to drive growth through innovation over the course of the next few years and perhaps beyond.
Over the past year the grocery market has been a difficult place characterised by low to no volume growth and the continued expansion of the grocery multiples. It is for this reason that many players have delivered weak sets of results. Against this context Waitrose’s performance – which has been market beating for 56 months in a row – is extremely impressive.
Part of the success is down to the acquisition of new customers thanks both to new store openings and successful marketing initiatives which have attracted new shoppers to existing stores. On the marketing front, the continued focus on value for money through price matching and the myWaitrose loyalty scheme have been key in making Waitrose more accessible for more people as well as aiding customer retention.
Outside of everyday staples, where Waitrose does provide more premium options, it justifies its price points through superior quality that ultimately gives the customer a sense of value for money as well as sating their appetite for indulgences. This, married with extensive product innovation and the launch of new lines, ensures that Waitrose is a destination of those with a ‘love of food’.
The continued growth of non-food across target areas, such as gardening and baby, will help drive sales and to bolster margins. While this is currently an embryonic area, it will provide a solid stream of future growth of the business.
Even though we are unlikely to see an easing in the pressures on the grocery market we believe that Waitrose has massive headroom for future growth and as such will continue to outperform both on a total and like-for-like basis.
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