John Lewis warns of potential bonus wipe-out

The department store chain booked like-for-like sales growth of just 1% in the seven weeks to 5 January. Picture: Jon Savage
The department store chain booked like-for-like sales growth of just 1% in the seven weeks to 5 January. Picture: Jon Savage
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The John Lewis Partnership is considering axing its staff bonus for the first time in more than 65 years amid warnings of “substantially lower” profits and a turbulent financial sector.

The retailer, which usually hands out a bonus to its 83,000 staff, which it refers to as “partners”, said that it was considering whether paying a bonus to workers would be “prudent” - despite a rise in sales at both the department store arm and sister supermarket brand Waitrose.

The John Lewis partnership structure, where the employees own the business, usually sees staff rewarded with a hefty payout in March. The size of the bonus is dependent on the performance of the firm, but in profitable years can be equivalent to a few months’s salary. Last year, staff got a 5 per cent bonus, which had been cut for the fifth year in a row.

John Lewis said like-for-like sales at its 51 department stores had grown by just 1 per cent in the crucial Christmas trading period over the seven weeks to 5 January, while Waitrose reported like-for-like growth of just 0.3 per cent.

Fashion, beauty and womenswear performed well, but the firm said profit margins remain under pressure in what is an “intensely competitive pricing environment”. Its “never knowingly undersold” policy of matching high street rivals’ discounts, hit it hard amid heavy discounting on the high street in the run up to Christmas. The company said there had been up to 30 per cent more promotions around the Christmas period than a year before.

John Lewis was one of many to post downbeat Christmas trading results yesterday, on what was being dubbed “Super Thursday”, with Debenhams and M&S both reporting a slump in festive sales.

Chairman Sir Charlie Mayfield said: “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.”

He added that the group was experiencing a higher level of uncertainty in the run up to Brexit.

It would be the first time since 1953 that staff have not received an annual bonus and comes just months after the firm undertook a major rebranding which introduced the “and Partners” element to its name.

Steve Burt, professor of retail marketing at the University of Stirling, said: “The re-brand really signalled to customers that they regarded their staff as very important, as shareholders, and this marked them out as different. For them to have to be in a position where the bonus is in question within the first financial year of the rebranding signifies that is has been a really tough year for them.”

Graham Soult, consultant at CannyInsights.com, said: “The annual bonus, reflecting the company’s distinctive ownership structure, is one of the features that has long distinguished the John Lewis Partnership from its department store and supermarket rivals.”

“Historically, it seems to have worked well as a way of incentivising the company’s Partners to offer customers an experience that is a cut above that of its competitors. So, to be even considering not paying a bonus this year is a big deal, and highlights the challenges that even well-run retailers are facing in the current economically uncertain climate.”

Waitrose saw a 21 per cent boost in sales of English and Welsh wine, while it said new products in its vegan range had also proved popular with shoppers.

Total sales across the Partnership were up 1.4 per cent over Christmas to £2.2 billion.

In its half year trading update in September, The Partnership saw profits plummet by 98.8 per cent to £1.2 million.