Commercial awareness: think like a professional about... John Lewis

Our banker, lawyer, accountant and consultant explain why John Lewis is winning the battle of the big retailers

As always during January, the retail industry is currently under scrutiny. The high street expects to make a large slice of its annual revenue in the run-up to Christmas, and December sales are seen as a test of the general health of the sector. This year, however, due to the ongoing difficulties in the UK economy, low sales expectations were matched by corresponding low actual results. According to the British Retail Consortium, an umbrella association for UK retailers that monitors the performance of the industry, UK sales were up by only 0.3 per cent, less than inflation, from December 2011. Commenting on the December figures: Helen Dickinson of the Consortium said, "Retailers knew they were facing a challenging Christmas. Some did better than others, but they were generally well prepared for shoppers' limited spending power."

One store that did considerably better than others was John Lewis. The leading department store reported sales of £645 million in the final five weeks of the year, three of which broke sales records. These sales figures represented a 13 per cent increase in sales on the same period in 2011. Some individual departments reported even higher rises: sales of electrical goods and home technology rose this December by 31 per cent, thought to be due in part to the demise of electricals store Comet.

The most striking growth in sales for John Lewis was perhaps that of online sales, which were 44 per cent higher than during the run-up to Christmas last year. This figure reflects the ever-increasing popularity of internet shopping in general in the UK - according to a recent survey by telecoms regulator Ofcom, British shoppers spend more online than those of any other nation in the world.

Thinking like a banker

Reaping what you sow

Results for Waitrose, the grocery arm of John Lewis, were no exception to the overall success of the business as it reported its best Christmas ever. But the supermarket's managing director, Mark Price, has warned that there may be trouble ahead. Heavy rain in the UK and drought in the US during 2012 have meant poor crop yields, and those of us in the finance world have seen these reflected in soaring prices for many agricultural commodities on the markets. Grocery businesses like Waitrose may be able to use derivatives to protect themselves against these fluctuations to a certain extent but, Price warned, shoppers are eventually likely to see food prices rise.

Thinking like a lawyer

The good ship

John Lewis is noted for its unusual partnership legal structure. Most large retail businesses are owned by private investors or divided into shares traded on the markets. John Lewis, by contrast, is a owned by a trust on behalf of all of its employees. Each is known as a partner, has a say in how the business is run, and receives a share of annual profits at the end of each year - in 2011, every member of staff took home an extra 14 per cent of their salary. The store's egalitarian approach led deputy prime minister Nick Clegg to call at the end of last year for the UK to aspire to a "John Lewis economy".

Thinking like an accountant

Tick for tax

In 2012 other popular retailers and prominent high-street names were ticked off for their apparent efforts to minimise the amount of tax they pay in the UK. John Lewis, on the other hand, urged the government to do more to ensure that money earned in the UK was taxed here. Is the store just sucking up to the government? No - making sure that other retailers pay tax fairly in Britain will help John Lewis to compete effectively with them for customers. If one retailer pays substantially less tax than another, that's more money it can invest in becoming top dog at the expense of its rivals.

Thinking like a consultant

Clicking with customers

What's the secret of John Lewis's success? Many professional commentators on the workings of the retail industry point to the fact that its online shopping infrastructure is second to none, in part due to some canny acquisitions in the IT sphere a few years back. A good online service is crucial to driving sales in the UK and John Lewis is particularly noted for its pioneering of the "click and collect" option, which shoppers love as they benefit from the convenience of ordering online with none of the hassle of waiting in for a delivery.

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