John Lewis and Partners has announced that it still anticipates a “substantially lower” profit margin in 2019 despite posting a 1% like-for-like sales increase on the previous year in a "positive" festive period where it saw a Christmas Eve sales record.
Its department store brand John Lewis is known for its high-budget festive advertising productions, and this year had Adam&EveDDB deliver creative looking back through the life of Elton John and how he received his first piano.
To coincide with the 'The Boy and the Piano', John Lewis ran its biggest ever product push which saw eight 10 second ads tout brands available in-store like Google, Nespresso, Apple, GoPro and Lego as it looked to position itself as the home of thoughtful giving using a technique it said yielded 20% return on ROI in the past. The piano from the creative was also available in the stores which were adorned with Elton John-themed decor in a physical execution of the ad.
The campaign tapped into the wider brief of "differentiating" the retailer from its competitors that it must outshine if it is to grow profit again. John Lewis said it saw "a record Christmas Eve in shops," hinting at the effectiveness of the campaign, but warned of problems to come.
Sir Charlie Mayfield, chairman of the John Lewis Partnership, said: "Two main factors are affecting the retail sector – oversupply of physical space and relatively weak consumer demand. Despite this, we had a positive Christmas trading period thanks to the extraordinary efforts of partners in our business, delivering differentiated products and service to customers.
"Gross margins remained under pressure in what was an intensely competitive pricing environment. Waitrose & Partners achieved the best operational performance we have seen for some years, with good availability, low wastage and Partners focused on providing better customer service."
He added that like-for-like sales had increased by 0.3% despite it reducing the volume of promotions in a bid to instead focus on its most loyal customers. To this end, the retailer reported that it had made good progress on its business strategy, focusing on differentiated products and services and maintaining investment in new capabilities.
Another John Lewis & Partners retailer, grocery chain Waitrose, saw like-for-like sales grow by 1% overall.
Mayfield warned: "We continue to expect full year total partnership profits to be substantially lower this year, driven by slower sales growth over the year and margin pressure in John Lewis & Partners along with higher costs, mainly as a result of our continued investment in our IT capability. The actions taken in recent years to prepare for the current pressures in retail mean that the partnership has the financial strength and flexibility to pay a modest bonus this year, without impacting our ambitious investment programme."
"The board will need to consider carefully in March, following the usual process, whether payment of a bonus is prudent in the light of business and economic prospects at that time."
One positive worth outlining is that John Lewis secured its biggest ever sales week during the Black Friday period when sales rose 12.8% over seven days. Another is the mass roll-out of its click and collect service, an attempt at innovation from the company. It said it "fulfilled 26,000 click and collect orders on Christmas Eve alone", up 52% year-for-year. This would have helped drive sales and footfall, while also making the retailer a more convenient, last-minute proposition.
Catherine Shuttleworth, chief executive at retail marketing agency Savvy, said: “John Lewis – despite all the discounting – has still returned a positive result this morning with department store sales up and food sales also up on a like-for-like basis. Where John Lewis have had its wins has been in beauty, women’s fashion and own label products.”