Are Rising Packaging and Job Costs Behind John Lewis's Growing Losses?

John Lewis Partnership has reported a nearly threefold increase in losses for the first half of the year, driven by rising costs associated with waste packaging and increased National Insurance Contributions (NICs). The employee-owned company, which operates John Lewis department stores and Waitrose supermarkets, indicated a significant jump in losses before tax to £88 million from £30 million during the same period last year. However, the firm remains optimistic about returning to profitability in the second half of its financial year, particularly with the critical Christmas shopping season approaching.

Last updated: 26 October 2023 (BST)

Key Takeaways

• John Lewis reported losses before tax of £88 million, up from £30 million last year.
• The increase in losses is attributed to new costs from waste packaging and rising NICs.
• Waitrose saw a 6% sales rise, totalling £4.1 billion.
• The company anticipates a return to profitability during the Christmas season.
• Staff bonuses remain uncertain, with no bonuses distributed in three years.

Financial Performance Overview

In its latest financial results, the John Lewis Partnership revealed that significant changes in the economic landscape have led to a challenging environment. The losses recorded for the six months ending on 26 July 2023 amount to a staggering £88 million, marking a considerable increase from the previous year’s losses of £30 million. This shift reflects the mounting pressures from external costs, particularly the new Extended Producer Responsibility (EPR) policy, which has transferred waste packaging expenses from local governments to retailers.

Understanding the Extended Producer Responsibility (EPR)

The EPR initiative aims to enhance recycling and waste management by holding producers accountable for the lifecycle of their packaging. For John Lewis, this has meant an unexpected financial burden, with £29 million attributed to EPR-related costs and increased NICs. The Bank of England has warned that such levies could contribute up to 0.5% to food prices, potentially leading retailers to pass these costs onto consumers.

Consumer Confidence and Market Outlook

Jason Tarry, chair of John Lewis Partnership, has expressed concerns over subdued consumer confidence as the company navigates a challenging retail landscape. Ahead of the upcoming Budget in November, Tarry remarked, “There’s no doubt consumer confidence is subdued.” Despite these challenges, Tarry remains optimistic about the company’s trajectory, anticipating that John Lewis will return to profitability during the crucial Christmas shopping period.

Anticipated Sales and Product Trends

John Lewis is banking on strong sales in the second half of the financial year, especially during the festive season. Tarry is confident that popular products, including wearable technology and Jellycat soft toys, will drive sales, suggesting, “It’s going to be a huge Jellycat Christmas.” The firm’s focus on customer preferences and product offerings is expected to enhance its competitive position in the market.

Waitrose Performance and Revenue Growth

In line with the overall performance of the partnership, Waitrose has experienced a 6% increase in sales, totalling £4.1 billion. This rise indicates a positive trend in consumer spending, with Tarry suggesting that customers may remain willing to indulge themselves during the festive period. Overall, revenue across the John Lewis Partnership rose by 4% to £6.2 billion, underscoring a robust performance despite the backdrop of increasing operational costs.

Staff Bonuses and Employee Engagement

Despite the company’s revenue growth, Tarry highlighted the uncertainty surrounding staff bonuses, which have not been awarded in the last three years. He stated that while the partnership is committed to rewarding its employees, it remains “far too early in the year” to confirm the timing of any bonuses. This situation has raised concerns among staff, who have been eager for recognition of their hard work during challenging times.

Strategic Initiatives and Competitive Edge

In response to evolving market conditions, John Lewis has implemented several strategic initiatives aimed at regaining customer loyalty. Notably, the return of the "Never Knowingly Undersold" price promise last year is a key element of their strategy. This commitment to price competitiveness is particularly significant in the current climate, where consumers are increasingly price-sensitive.

Focus on Customer Experience

Analysts, such as Zoe Mills from GlobalData, believe that John Lewis’s emphasis on knowledgeable staff can provide a competitive advantage. By ensuring that employees possess deep product knowledge, the company can foster trust and reliability, particularly in high-value categories like electronics and cosmetics. This approach not only enhances customer satisfaction but also positions John Lewis as a go-to destination for informed shopping.

Challenges Ahead

Looking to the future, John Lewis faces multiple challenges. The evolving regulatory landscape, alongside rising operational costs, continues to exert pressure on margins. Furthermore, competition from other retailers intensifies as consumer preferences shift. The upcoming Budget in November will likely play a crucial role in shaping the retail environment, with potential implications for consumer spending and overall market dynamics.

The Importance of Adaptability

As the retail industry continues to face uncertainty, adaptability becomes essential for survival. John Lewis’s focus on customer-centric strategies and innovative product offerings may prove vital in navigating these challenges. The company’s ability to respond effectively to changes in consumer behaviour and market conditions will ultimately determine its success in the coming months.

Conclusion

The latest financial results from John Lewis Partnership reveal a complex landscape shaped by rising costs and subdued consumer confidence. Despite reporting significant losses, the company’s commitment to returning to profitability during the key Christmas season signals resilience and determination. As shoppers increasingly seek value and quality, John Lewis’s strategies—emphasising knowledgeable staff and competitive pricing—will be critical in attracting customers. The upcoming months will be pivotal for the partnership as it strives to regain momentum in a rapidly evolving retail environment.

FAQs

What caused the increase in losses for John Lewis?

The increase in losses for John Lewis is primarily due to rising costs from the Extended Producer Responsibility (EPR) policy and increased National Insurance Contributions (NICs), leading to losses before tax of £88 million.

What are the expectations for John Lewis in the second half of the year?

John Lewis expects to return to profitability in the second half of the financial year, particularly during the critical Christmas shopping season, driven by anticipated strong sales in popular product categories.

How did Waitrose perform financially?

Waitrose reported a 6% increase in sales, totalling £4.1 billion, contributing to a total revenue increase of 4% across the John Lewis Partnership, which reached £6.2 billion.

Are staff bonuses expected at John Lewis?

While John Lewis is committed to paying staff bonuses, there is uncertainty regarding the timing, as employees have not received bonuses in three years. The company expects to provide them “as soon as we possibly can.”

What is the "Never Knowingly Undersold" price promise?

The "Never Knowingly Undersold" price promise is a commitment by John Lewis to ensure its prices are competitive, reassuring customers they are getting the best value compared to other retailers.