John Lewis Partnership Mulls Proposals to Turnaround Company, Expand Beyond Retail

  • August 02, 2020 01:15 AM BST
  • Hina Chowdhary
    Director, Equities Research Hina Chowdhary
    1376 Posts

    Hina Chowdhary is the Director, Equity Research at Kalkine and has an extensive experience of about 15 years in the area of Research, which includes 5+ years in Equities Research particularly.She has earned a Master of Science degree from the renowne...

John Lewis Partnership Mulls Proposals to Turnaround Company, Expand Beyond Retail

Summary

  • John Lewis wants some of its closed stores to be converted to affordable housing
  • The company wants to sell its own-label food through its own stores as well as through other retailers’ stores
  • The company is one of the very few in the retailing business that is not in the red and is still giving a bonus

John Lewis Partnership (JLP) Plc which owns John Lewis & Partners and Waitrose & Partners, is one of the largest non-traded companies in the United Kingdom. Owned by nearly 83,000 of its employees, whom the company calls partners, it has been one of the shining stars in the retail sector which has been able to ward off many of the potential hits of the coronavirus pandemic. However, the company has suffered revenue losses because of the pandemic and has informed its partners that it may not be able to pay the annual staff bonus next year because of the prevailing conditions. Meanwhile, the company has proposed a novel solution to deal with its current financial problems. Sharon White, the current Chairman of the company, has informed its staff/partners that the company would repurpose some of its excess floor space, for social causes and rent it out to third parties for mixed-use affordable housing. The idea is indeed novel and could bring in some additional revenue for the company and protect it from slipping into a deeper financial crisis. However, the underlying and more important aspect of this plan is that the company will not be losing this floorspace like many other large retailers are doing and would be able to scale it back when better times prevail.

The company is known for its novel approach to things

The company has its date in history experimenting with novel ideas. Though being a company, it is owned by a trust on behalf of its employees, who are called partners and receive a bonus, which is actually a share of profit. How has that worked; the company has been in business for more than 90 years now and is today one of the top non-traded companies in the UK by sales. The company merchandises a wide range of product categories including cosmetics, clothing, watches & Jewelries, housewares, giftwares, furniture, bed & beddings, consumer electronics, photography, computing, food & beverages as well as a financial service vertical.

In the annual accounts published by the company for the year 2020, it has reported a revenue of £10.2 billion, which is slightly lower than the revenue it reported last year of £10.3 billion. Its profit before tax for the year was £146.4 million, which is a growth of 24.7 per cent over previous years profit before tax of £117.4 million. Its profit before partnership bonus tax and exceptional items stood at £122.6 million, which is lower compared to last years figure of £160 million. Its average profit per full-time equivalent partner is £3,500 for 2020 whereas for 2019 it was £5,000.

On the solvency side also the company’s position has improved, its debt ratio for 2020 stands at 3.9x whereas for 2019 it stood at 4.3x. On the liquidity side, the company is slightly on the lower side in 2020 at £1.4 billion of cash and cash equivalents while for 2019 it was holding a cash reserve of £1.5 billion. In April 2019, the company had made a repayment on a bond liability of £275 million.

The company’s strong cash position which is nearly 13 per cent of its revenues have helped it tide over the difficult period of the lockdown and would also see it through the slower market for the rest of year. The slow business in the second and third quarters of this year, however, will reflect in the books of the company next year, for which the company has already warned that it will not be able to pay bonuses.

The company though being one of the largest retailers in the UK has a very small online retail offering, which currently contributes to around five per cent of its revenues, which the company expects to scale up to 20 per cent in times to come. The company also intends to get into the horticulture in near future in a farm of 1600 hectares it owns in Stockbridge in Hampshire.

The current state of the retailing sector in the United Kingdom

The retail sector in the United Kingdom is in a very precarious state due to the long lockdown. While the online retailing segment of the industry has been growing by leap and bounds in recent times, traditional shop floor retailing has suffered significantly. Several small and medium retail companies have shut shop in the recent past, leaving thousands of their employees jobless.

Since the beginning of June however the industry has been showing some signs of improvement as demand for consumer durables, and other non- food items have been growing at a faster pace, leading many to believe that a revival of the industry is already happening. However, there are others, who believe that this phenomenon is temporary and is just because of the pent-up demand for these products from the time of the lockdown and would not sustain beyond a month more.

Outlook for the next twelve months for John Lewis Partnership Plc

The innovative ideas that John Lewis partnership has brought to the table will go a long way in protecting its assets and partners interests in the short as well as the midterm. Its plan to expand into new business verticals as well as find innovative ways to bring in more cash flow into the company is a strategy that will provide a strong support base to the company in the most talked-about the unfortunate event of the pandemic making a resurgence in the winter months.

On the flip side, the company has been a bit slow in adopting technology and making a larger online offering of its merchandise. The company would do well to take this up urgently to improve its financial position into the next year.

 


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