A shopper passes a closed John Lewis store in Watford. Department store sales were down 10% in the first half of 2020, with the decline mitigated by a 73% surge in online revenue
At John Lewis’s department stores, sales were down 10% in the first half of 2020, with the decline mitigated by a 73% surge in online revenue © Tolga Akmen / FT Commission

John Lewis will axe the bonus for its partners for the first time in more than 70 years as exceptional charges pushed it to a £635m loss in the first half.

Sharon White, chairman of the employee-owned retail group, said bonuses would only resume once annual profits rose above £150m and net debt fell back below four times underlying profit.

“I know this will come as a blow to partners who have worked so hard this year,” she said.

John Lewis has been hit by weakening consumer sentiment and intense competition, particularly in its department store business. Profits there more than halved last year, even before any impact from Covid-19.

The pandemic forced the closure of its 50 stores for at least 12 weeks, with total sales down 10 per cent in the first half as a result. Sales were up 5 per cent in the first seven weeks of the second half, which was a better performance than expected.

Online sales now make up three-fifths of the total after a 73 per cent rise. This increase has forced John Lewis to reassess the value of stores in driving online spending — it now thinks only £3 of every £10 spent online is contributed by stores, half its previous estimate.

Patrick Lewis, finance director, said the company was “an adamant believer in the importance of shops and online working together . . . we will continue to invest in shops”.

But the company nevertheless wrote down the value of its department stores by £470m and earlier this year said that eight stores would not reopen after lockdown.

Richard Lim, chief executive of consultancy Retail Economics, said the company was clearly evaluating whether the large footprints and high operating costs of department stores were worth it, given that it already had a strong online brand.

“The logical thing may be to utilise the Waitrose supermarkets to join up physical and digital,” he said.

John Lewis struck an upbeat note on peak-season trading, though, saying that Black Friday and Christmas should be “as good if not better than last year”.

“We think most families will want a bit of a lift at Christmas after what has been a pretty torrid year,” said Dame Sharon. She expected “a small loss or small profit” at group level for the full year to January, a slightly better result than predicted in April.

Mr Lim said that while many consumers had become forced savers during lockdown — with commuting costs reduced by homeworking and holidays and entertainment curtailed — some of this spending power might already have been diverted to categories such as DIY and gardening.

“We have also not yet felt the full economic effects of the pandemic,” he added.

First-half sales at Waitrose, the upmarket supermarket chain, rose 9.6 per cent, with a 6 per cent increase so far in the second half — including “a strong pick-up in demand” since its supply agreement with Ocado ended on September 1.

Dame Sharon said the strategic review launched earlier this year would report in October and could not rule out more store closures. “Customer shopping habits are changing. Our job is to be as easy and convenient as possible for the customer,” she said.

The group has submitted a planning application to reduce floor space at its Oxford Street store. But Mr Lewis said it was “too early to say” whether the post-pandemic trend of retail parks performing better than city centres was permanent.

Excluding the one-off items, the partnership made an overall first-half loss of £55m, similar to the £52.9m loss made in the same period a year ago.

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