Money

John Lewis's problems are fixable, but partners will need patience


Back in the 1990s, there was a live debate within the John Lewis Partnership about whether to throw in the towel on employee ownership and join the demutualisation fad that infected (and ruined) too many building societies.

So crises at JLP need to be seen in perspective. Employee ownership is safe and today’s boardroom is not in despair. All the same, the first non-payment of a bonus to staff since 1953, plus a thumping £470m property writedown, says this crisis is a bad one. And it arrived well before Covid-19.

The good news, of a sort, is a sense of urgency and new thinking. Eight department stores were culled during lockdown to reinforce the online push. Deliveroo, almost the cultural opposite of cuddly JLP, has been hired to trial 30-minute Waitrose deliveries. The newish chair, Sharon White, is accelerating the goal of knocking £100m off head office costs.

Here are the worries, though. First, the staff bonus and a reputation for superior customer service were always billed as directly linked. What happens in a zero world that, White warned, could last two years? And how do staff at Waitrose, which is holding up its end, feel about the enforced sacrifice?

Second, axeing “never knowingly undersold”, which now seems likely, is not free of risk. Yes, the pledge was costing a fortune, but the department stores badly need to establish price credibility on everyday own-brand items.

Third, promoting “purpose” as your point of difference is sensible for an employee-owned organisation, but only 40% of customers, apparently, know that the business is co-owned; there is a marketing job to do.

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Fourth, the group risks spreading its brand thinly as it embarks on ventures into financial services and even housebuilding (to make use of surplus properties). Plenty of retailers have messed up in financial services.

To repeat, the crisis ought to be fixable, and a reasonably strong balance sheet creates room to breathe. Every set of results, though, suggests the job will take years.

This virus has taught Next some useful lessons

By way of contrast, look at Next, where it is almost possible to believe that, within a year or two, the pandemic will appear as a blip in the numbers. Pre-tax profits this year will be £300m on the company’s “central” projection, a big fall from last time’s £728m but a much better outcome than was expected even a couple of months ago.

Certainly, the chief executive, Simon Wolfson, has moved beyond firefighting. “It is remarkable what can be learned from shutting down your entire operation and slowly, department by department, store by store, warehouse by warehouse, bringing it back to life,” he says.

The first lesson is that working from home contains “the good, the bad and the unknown”. The good is the insight that “the corporate machine was supporting the inexperienced and the less able, but holding back the strong”. So liberate the functions that benefit.

The bad is “death by deck”, or dull slideshows delivered to captive audiences. Keep the office as “a cauldron of new ideas”. The unknown is striking the right balance. For its part, Next will avoid edicts from the boardroom and allow practices to evolve.

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Many companies will be stumbling towards their own conclusions. They would reassure their shareholders, though, by sharing their plans. This stuff doesn’t show up in City analysts’ short-term forecasts, but it matters. The management of working from home, one suspects, will drive huge productivity differences within industries. Some firms, inevitably, will get it very wrong.

Whatever happens, “death by deck” is a useful phrase: Zoom has many sins to answer for.

Who let BA and Ryanair pay these absurd bonuses?

What is it about airline bosses and their insistence on receiving bonuses even as they warn that their entire industry is in peril? Willie Walsh at IAG, parent of British Airways, took his £883,000, and Michael O’Leary at Ryanair sees no problem in accepting €458,000 (nearly £420,000).

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Both companies have taken large helpings of furlough support from the UK Treasury, so the moral case for refusing the bonuses ought to have been overwhelming. The argument that pre-pandemic performance was being rewarded is risible. There was time to stop the payments. Are you in crisis or not?

Twenty per cent of shareholders objected at IAG and about a third at Ryanair on Thursday. Both rebellions were hefty by usual standards, but one can also look at those tallies the other way round. Who are the fund managers who think the largesse is OK? And did they think of sampling opinion among the people whose money they manage?



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