Staff bonuses at John Lewis and Waitrose have been slashed to the lowest level in 66 years after a “challenging” year in which underlying profits fell 45%.
John Lewis Partnership, which owns both brands, said the payout to more than 83,000 employees was being cut in order to keep paying off debt and maintain investment levels amid continued economic uncertainty.
It said this was having a “major impact on consumer confidence” and also warned that an “unmanaged” Brexit would result in a big fall in shopper sentiment.
The annual bonus of 3% of salary is the lowest since 1953, when there was no pay-out, and down from 5% last year – the sixth consecutive year it has been cut. It was 17% in 2013.
But it may still come as a relief to many workers after a warning earlier this year that the payout may have to be scrapped altogether as the company faced tough trading conditions.
Chairman Sir Charlie Mayfield told Sky News there was “as loud a cheer for that as there had been for bonuses that were much higher” as staff were “very realistic”, he said.
“They know these are difficult times,” Sir Charlie said.
He said conditions for the business – owned by its employees under a partnership structure – were expected to “remain challenging” during 2019.
Operating profits for the year to 26 January were down by 56% at the John Lewis department store chain because of lower sales and a period of “near constant discounting” from October onwards in response to weak demand and “distress” from rival retailers.
Profits at Waitrose were up by 18% after like-for-like sales grew and margins were boosted by new ranges including vegetarian and vegan products.
Meanwhile, the supermarket chain revealed it has sold five stores to rival retailers, affecting 440 jobs.
It also posted strong growth in online sales, ploughing investment in its Waitrose.com offering as it prepares to sever its current tie-up with delivery company Ocado.
For the partnership as a whole, profit stripping out bonuses, tax, and one-off items was down by 45% to £160m.
On a bottom-line basis, profits were up by 9% compared with a period last year when it was hit by major restructuring and accounting charges.
JLP said that it had been preparing for Brexit for over a year and that it was well positioned for a “managed transition”.
But it added: “The main risk in an unmanaged transition is a strong fall in consumer confidence and the impact that has on trade.
“Given the current level of uncertainty, we expect 2019 trading conditions to remain challenging.”
The company is still counting the cost of the plunge in the pound after the EU referendum as its currency “hedging” in place since before the vote – insurance policies designed to smooth out the impact of market volatility – has now ended.
Sterling’s weakness means higher import costs for retailers such as JLP but it has not felt able to pass these on to customers amid fierce competition for consumers – resulting in a squeeze on profits.
The company added that retailers were also facing up to an “inevitable market adjustment” as they battled to be big or relevant enough to shoppers to compete.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Clearly things on the UK high street aren’t pretty, and if the bellwether John Lewis is creaking, you can be sure others are feeling the pain.
“In the short term, things don’t look like getting much better, but further out, John Lewis may ultimately pick up market share from others who fall by the wayside.
“A larger slice of the pie could be the reward for staying the course, but what remains to be seen is just how big a pie is left after the current shift in retail washes through the system.”
(c) Sky News 2019: John Lewis bonuses slashed as profits slump