March 8, 2018 / 10:06 AM / 2 years ago

UK's John Lewis Partnership expects profit squeeze from competition

LONDON (Reuters) - The John Lewis Partnership expects further pressure on profits in 2018 after a 22 percent drop last year as a result of persistent competition on the British high street.

FILE PHOTO: Shoppers pass a branch of John Lewis in London, Britain, September 15, 2016. REUTERS/Toby Melville/File Photo

Margins at its upmarket supermarket chain Waitrose were squeezed in 2017 as the group tried to keep prices competitive while costs rose due to a fall in the value of sterling.

John Lewis Partnership chairman Charlie Mayfield on Thursday blamed falling disposable income, a lack of activity in the housing market and the negative impact of Brexit on consumer sentiment for Britons reining in their spending.

“We have seen margins coming under pressure, and in fact, if anything, they came under more pressure probably than we had anticipated,” he told reporters at a press conference.

The tough high street conditions were highlighted last month when two high-profile UK retailers, Toys R Us UK and electronics chain Maplin, collapsed, jeopardising 5,000 jobs.

The Partnership, which has 49 eponymous department stores and 353 Waitrose supermarkets, warned that this year would see no improvement.

“We expect trading to be volatile in 2018/19 ... (and)anticipate further pressure on profits,” it said. However, it would benefit from investments made last year.

For its last financial year ended Jan.29, it said its profit before partnership bonus, tax and exceptional items plunged 22 percent to 289.2 million pounds ($401 million) on gross sales that were 2 percent higher at 11.6 billion pounds.

The employee-owned retailer said its 85,500 staff, known as partners, would get a bonus of 5 percent, down from 6 percent last year and at its lowest level since 1954. Mayfield said it could drop to zero if required but that was not his intention.

To remain competitive it absorbed some of the hit from inflation, with the cost price of essential butter rising 200 percent while the retail price only rose 36 percent.

Waitrose is facing intense price competition from larger supermarket groups Tesco (TSCO.L), Sainsbury’s (SBRY.L), ASDA and Morrisons (MRW.L), as well as fast-growing German discounters Aldi [ALDEI.UL] and Lidl.

That meant it would be difficult to increase prices.

“My obsession is around making sure that our customers think they’re getting really good value from Waitrose,” managing director Rob Collins said.

However, John Lewis said its department stores fared better with operating profit before exceptional items up 4.5 percent, helped by stronger fashion and electrical sales.

($1 = 0.7206 pounds)

Reporting by Sarah Young; Editing by Mark Heinrich and Alexander Smith

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