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John Lewis Partnership is to shed about a third of management roles in a shake-up that will bring together its department stores and supermarkets in an attempt to cut £100m a year from its costs.
From next year the two divisions will be run as one company under a single eight-person executive team. Paula Nickolds, managing director of the John Lewis stores, will become executive director of brand, while Waitrose managing director Rob Collins will leave early next year.
The overhaul comes shortly after John Lewis revealed its first half-year loss, while staff bonuses have shrunk to levels not seen since the 1950s. This year the company, which is battling against weak consumer spending and structural changes in retail, announced changes to its generous pension scheme that are designed to save about £80m a year.
Charlie Mayfield, chairman, told the Financial Times the existing dual set-up dated back to 2001 and was intended to give the two divisions more autonomy and allow them to grow more rapidly.
“You knew that was creating duplication, but you didn’t mind because it was outweighed by the benefits of scale and growth,” said Sir Charlie. “But from around 2014 we saw that returns in both food and non-food started to fall. Return on capital was falling or coming under pressure. We saw the need to reduce duplication and we started to reduce capex on new space.”
The following year, functions such as finance, IT and human resources were centralised. “We are now going even further,” he added.
John Lewis caters to a largely middle-class clientele, is soundly financed and regarded as being ahead of rivals such as Debenhams or House of Fraser in terms of ecommerce. But it has not been immune from the competitive pressures on the UK’s high streets.
Richard Hyman, an independent retail commentator, said the shake-up “signalled very far-reaching change across the business” but would have to be implemented carefully. “There is lots of duplication of functions at the moment. Where and how they come together will be the key thing.”
Thomas Brereton at GlobalData said the moves were “clearly driven by cost” and that while they were laudable for their boldness, running a unified strategy for a proposition that ranges from groceries to furniture was “questionable”.
The new structure reflects the significant overlap between the two brands’ customers: 80 per cent of those who spend the most at the group shop at both Waitrose and John Lewis. The group recently started trials of a loyalty card scheme common to both brands.
The changes will come into effect in early February 2020, shortly after Sir Charlie’s replacement, Sharon White, takes over as chairman.
Sir Charlie said Ms White, who is currently head of telecoms regulator Ofcom, had been “fully briefed” and that given prevailing market conditions, the company could not have waited for the handover to be completed first. “We have been heading in this direction for some time,” he said.
“It would have been very hard for Sharon to do this in her first year as a new arrival. There is of course the potential to adjust and fine tune and I’m sure she will want to do that,” he added.
Ms White said in a statement that there was “huge potential to unlock from partners working across our two great brands” and that she was “very excited to be taking forward the partnership in this next phase of its transformation when I join at the start of next year.”
The separate Waitrose and John Lewis boards will be replaced by a single eight-person executive team covering areas such as strategy, trading and operations.
The partnership board — the highest level of governance in the group — will also be slimmed down from 15 members to eight. At least three of those board members will be elected by the 58-member Partnership Council, so preserving the employee democracy that the group is known for. The council will also have to approve the changes to the partnership board.
The £100m of cost savings include gains from the likely consolidation of the group’s central London office space. Sir Charlie said it would look to base more roles in the larger of its two properties in Victoria, with support services increasingly located at Waitrose’s headquarters in Berkshire.
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