The bad news for retail investors is that John Lewis isn't an investible company. It's owned by the John Lewis Partnership and shouldn't be confused with LSE listed kitchen and furniture specialist John Lewis of Hungerford (JLH). The good news is that investors in the retail sector can learn a lot from John Lewis, as it often acts as a benchmark for the shopping habits of middle-market Britain.
That's why, perhaps, recent numbers from the group have put the market on edge. The department store chain and Waitrose owner said competitive pricing and shifts in consumer spending had offset sales growth and market share gains during the first half of the financial year. Adjusted pre-tax profits for the six months ending July fell 14.7 per cent to £81.9m, which the group said reflected deeper, structural changes in the retail market.
Interestingly, the group hasn't blamed the Brexit vote or any associated slump in consumer confidence for its recent performance. Good job too, because it was clear that John Lewis got off to a poor start this year regardless. In March, it announced staff bonuses would shrink for a third year in a row and as wages rise in line with the latest legislation, redundancies appear to be on the cards. Price deflation and growing online competition have largely been responsible for putting margins under pressure. But chairman Sir Charlie Mayfield has been quoted as saying these are just a few examples of far-reaching changes that have more implications for the future of British retail than the recent referendum.
So what are retailers really struggling with? Sales are up at John Lewis which, for all the conflicting high-street footfall and retail sales data out there, implies shoppers are still hitting the streets. Profits are down largely as a result of higher costs and a continued 'race to the bottom' as retailers chase sales growth - and thus customer loyalty - over bottom-line earnings. Ultimately, these were trends long before recent political events, and as shopping trends and tastes continue to evolve, it looks as though these changes pose a long-term challenge for British retail companies.
