retail

John Lewis looks to a future away from the shop floor


The John Lewis store in Sheffield has a history back to 1847 — and locals are not taking its planned closure lightly.

The site on the old Cole Brothers building is one of eight of the group’s department stores singled out to remain closed when the current UK lockdown ends.

“Piss poor by John Lewis” was the blunt response to the Sheffield closure from Pete McKee, a well-known local artist, who warned the decision would be “another nail in the city centre’s coffin”. Hundreds of others took to social media pledging never to shop with the group again.

The loss of another store in York leaves only the Leeds department store serving a region of more than 5m people. The latest culls mean the employee-owned group will have closed almost a third of its 50 stores over the past year

“We and the council decided that the [Sheffield] store was not appropriate for the catchment,” said Pippa Wicks, executive board member for John Lewis, adding that it would have been wrong to spend public funds on a refurbishment agreed with the council last year as part of a wider regeneration plan.

The challenge for John Lewis and many others is not just shoring up profitability as they emerge from the pandemic, but of working out how many stores they need now that shoppers have shown an increasing willingness to transact online.

John Lewis’s stores in shopping centres and on the high street have been hit hard; Average change in footfall each year between 2008 and 2020 by destination type (%)

The group — which still has eight more stores than it did in 2008 — has said the latest closures are a response to trends that predate Covid-19, rather than a cash-saving gambit, and that it will be putting at least £100m into improving its 34 remaining shops.

“Of course we have to manage our finances prudently . . . but these [store closures] are driven by changing customer behaviours,” said Bérangère Michel, finance director.

John Lewis’s space expansion after the financial crisis was fuelled by a widely-shared belief that stores and ecommerce would grow together and capture a greater “share of wallet”. It was not alone; rival Debenhams once planned to expand its UK estate to more than 200 shops.

Instead, ecommerce spread more deeply into categories it had already penetrated, such as electronics, and more widely into new domains like fashion and beauty. That took sales away from stores, especially those in city centres and shopping malls where footfall has declined by more than out-of-town retail parks.

“On the downside, department store retailing is a really vicious model,” said Andrew Murphy, executive director of operations at John Lewis. “Even without the pandemic, just the transition to online being 3 or 4 percentage points more than we predicted has a really profound effect.”

One former partnership insider observed that reputational heritage was now less of a factor online. “In the early days of ecommerce the respect that a physical brand brought was really important,” they said.

Physical stores no longer play such a role in purchasing dynamics. John Lewis once estimated that shops helped generated £6 of every £10 spent online; last year it cut that to £3 in every £10.

Cole Brothers store, later John Lewis, in Sheffield, has a history dating back to 1847 © Alamy

To some, the store closures still look like an overreaction. “I do worry that they are viewing things through the lens of the pandemic,” said independent retail analyst Bryan Roberts.

When Covid-19 arrived, John Lewis found that many customers who loved stores shopped online if they had to. Online sales went from two-fifths to four-fifths of the total, and it expects them to remain well over half.

Similarly, sales at UK homeware and electrical retailer Argos during the first lockdown grew compared with the previous quarter even though all its shops were shut. Dixons Carphone’s UK electricals sales were up 15 per cent in its first half, despite its 300 stores being closed for extended periods.

In making its own assessments, John Lewis relied on detailed analysis of the behaviour of more than 20m customers across both its department stores and the Waitrose supermarket chain.

It will retain large stores only in areas where there is sufficient customer density. “We have 34 shops where, having done all this mathematics, we are very confident for our prospects,” said Michel.

Smaller estates can produce strong returns. Spanish-owned fashion chain Zara has just 70 shops in the UK generating £800m of sales a year; mid-market rival H&M has 25 per cent more revenue but over three times as many stores. And Next has shown that it is possible to shrink store numbers while growing sales overall.

John Lewis customers will also be served online and via mini-stores in many of the 350 Waitrose supermarkets. Early trials of these show a 30 per cent uplift in sales across replaced lines.

John Lewis store UK closures map

Murphy said comparisons with a previous attempt at co-operation between the two brands, widely regarded as a failure, were misleading.

“What Waitrose did before was buy a limited range of general merchandise and stick it in a supermarket shelving context with a few [John Lewis] products spliced in. They didn’t do it at national scale and we didn’t have a single supply chain at that point, so the costs were very significant”.

There is also the prospect of smaller John Lewis stores, though the former insider cautioned that cutting tens of thousands of product lines to hundreds was a big challenge. “It is unproven whether a smaller format works or can be made financially viable”.

One consolidation for Sheffield is that it could yet become home to one of “up to 20” such stores, according to Wicks. “We are in really constructive conversations with Sheffield . . . there are good customers there and potential sites that might be appropriate,” she said.



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