John Lewis and Waitrose have furloughed 14,000 staff as part of efforts to cut costs during the COVID-19 pandemic.
John Lewis Partnership, which owns the department store and supermarket Waitrose, said on Tuesday 21 April it was taking actions to preserve cash in the business to help the partnership weather the storm.
The group said 14,000 staff had been furloughed under the government’s job retention scheme, largely due to the closure of all 50 John Lewis department stores.
John Lewis Partnership has also cut marketing spend by £100m ($124m), cut investment plans, and is buying less stock. The group is also trying to negotiate rent reductions, while the board and management have agreed to take 20% pay cuts for three months.
“The Partnership has been trading for nearly a century,” chairman Sharon White wrote in a letter to staff. “It has survived a world war and bombings, economic crashes and crises. Thanks to you, we shall also come through COVID-19 too and emerge stronger.”
White said all frontline John Lewis and Waitrose staff will receive a one-off bonus of £200 in recognition of their hard work during the crisis. All furloughed staff will also receive full pay until the end of May, when they will move onto the government’s 80% pay scheme.
The cost cutting comes after a significant deterioration in trading at John Lewis. The closure of stores has pushed some sales online but customers are buying cheaper items.
“We are buying more Scrabble but fewer sofas,” White wrote.
John Lewis sales have fallen by 7% since the end of last January and the slump has accelerated to a 17% decline since mid-March.
Waitrose has seen an uptick in demand. Sales have rise by 8% since the end of January, with booming demand for items like rice, pasta, long life milk, home baking goods, frozen foods and cleaning products.
However, Waitrose is a smaller part of the business. White also warned that sales at both divisions could ultimately fall this year.
“Over the course of the full year, this worst case would result in a sales decline of around 35% in John Lewis, around double the current level, while at Waitrose it would result in a more modest decline of less than 5%,” she wrote.
White said Waitrose had around £900m of cash in the business and £500m of undrawn bank facilities. She said she was “confident that we have sufficient cash to operate successfully through a broad range of potential scenarios.”
John Lewis Partnership said it was “supporting the community” the crisis with actions such as essential supply boxes for NHS workers, a £1m fund to support the vulnerable, and priority access to Waitrose for NHS staff.
The group pledged to keep paying suppliers within a turnover of below £100,000 within seven days and said it would donate £200,000 from the Waitrose charitable foundation to support overseas farmers.
YOUR PARTNERS THROUGH IT ALL: TRADING UPDATE AND 2020 ANNUAL REPORT AND ACCOUNTS
WEDNESDAY 21 APRIL 2020
I wanted to thank you for your extraordinary commitment and professionalism during the pandemic. Your support to each other, to customers and to the community has been inspiring and humbling. The Partnership has come together in a wonderful way, with thousands of John Lewis Partners supporting Waitrose.
Today we are publishing our Annual Report and Accounts, which sets out the Partnership’s financial performance for last year. The Partnership is to all intents and purposes a social enterprise. We prioritise customers and Partners ahead of profit. We aim to make sufficient profit to invest in customers and Partners, not the maximum amount possible.
I wrote to you with the highlights of last year’s financial performance when I announced the bonus decision in March. With the outbreak of COVID-19, I wanted to give you the latest picture on our trading performance. I also wanted to say more about how we are supporting customers, Partners, suppliers, and our communities at this time of national emergency.
This is a time of great uncertainty and volatility and the full year picture is impossible to predict. We are therefore looking at a range of different possible outcomes and how these might affect profits, sales and cash flow.
We are confident that the future of the business is strong. Our short term trading has though been significantly affected, principally because of the closure of all 50 John Lewis branches. John Lewis online remains open – providing essential goods and services to enable customers to live well at home – and online sales are substantially up on last year. But it has not been enough to offset the loss of shop trade. Demand at Waitrose has risen sharply but operating costs have increased too, especially as we have expanded online delivery.
The safety of our customers and Partners is our absolute priority. In our shops we have put in place checkout screens; raised the contactless payment limit to £45; introduced floor markers to support social distancing. In our warehouses and distribution we are operating social distancing and maintaining high health and safety standards. We are working round the clock to ensure Partners have all the personal protection equipment you need.
Partners are daily making significant personal sacrifices. All non-management Partners and first level managers will receive a one off award of £200. Partners who have been furloughed largely as a result of the closure of John Lewis shops, will receive full contractual pay until the end of May.
SUPPORTING THE COMMUNITY AND OUR SUPPLIERS
As a Partnership we have a particular responsibility to support those in the greatest need. We have created a wellbeing area for NHS staff at the Nightingale Hospital in London, and are looking to do similar in Birmingham. With the British Medical Association we are providing boxes containing essentials such as toiletries, snack food, tea, coffee and socks for NHS workers. We have also given NHS staff priority service in our Waitrose shops.
We are also supporting elderly and vulnerable customers, with the first shopping hour of the day given over to them and one quarter of our online slots reserved for them. I know many more customers would like home delivery than we can cater for and this has caused understandable frustration. We also have set up a £1m fund to support vulnerable members of the local community, including schools for the children of key workers.
These are difficult times for suppliers. We are sticking by our commitment to pay our smaller food suppliers with a turnover below £100,000 within seven days. And we are donating £200,000 from the Waitrose charitable foundation to support overseas farmers.
The pandemic has significantly changed the trading patterns in both brands. In Waitrose, we have seen strong sales growth up 8% year-on-year since 26 January. Items in highest demand have been cupboard essentials like rice, pasta, long life milk; home baking; frozen foods and cleaning products. Sales have increased in both our shops and online. Demand for home delivery has been especially strong and we have increased our capacity by 50%, which puts us in good stead ahead of the ending of the Ocado contract in September.
In John Lewis, trading has been mixed. With stores closed, we have seen a significant spike in our online sales which are up 84% year-on-year since the middle of March. The highest demand has been in areas linked to working and living at home like technology and food preparation but also in looking after and entertaining our children and keeping fit. However, these are some of our less profitable lines. We are buying more Scrabble but fewer sofas. Overall, John Lewis sales are down 17% year-on-year since the middle of March, and down 7% year-on-year since 26 January.
Our worst case scenario for the full year assumes significant sales decline between April and June, and weak sales thereafter. Over the course of the full year, this worst case would result in a sales decline of around 35% in John Lewis, around double the current level, while at Waitrose it would result in a more modest decline of less than 5%.
CASH AND LIQUIDITY
We started the financial year with just over £900m cash and investments in the bank and with access to a further £500m of undrawn committed bank facilities. Six weeks into the crisis, we are holding broadly the same level of cash and investments. But with such unprecedented trading volatility we have a range of actions that we are ready to take to secure the financial sustainability of the Partnership.
The Government has introduced a 12-month business rates holiday for England and Scotland. This will save the Partnership around £135m this financial year. The Government has also deferred payment of VAT until March 2021, which will help our short term cash flow.
The Board has already taken a number of steps to preserve liquidity. These include:
– Lowering our planned stock intake in line with our slower trading in John Lewis.
– Reducing operating costs, including cutting back on our marketing spend by close to £100m.
– Minimising capital and investment commitments: Our capital and investment spend for 2020/21 will be over £200m less than originally planned.
– Furloughing more than 14,000 Partners whose jobs are temporarily no longer supported by the business.
– Negotiating with landlords regarding rent relief, including an immediate switch to monthly from quarterly payments.
– Working with our banking partners to consider how extra flexibility can be provided, should it be needed.
In addition, the Executive Team, Non Executive Directors of the Partnership Board, the Independent Directors and I will be taking a 20% cut in pay from April, initially for three months.
With these actions and continued close attention, I am confident that we have sufficient cash to operate successfully through a broad range of potential scenarios.
EMERGING STRONGER FROM THE CRISIS
I announced in March that we will be undertaking a Strategic Review of the Partnership, to strengthen our core retail business and develop new services outside retail. The review will now be accelerated and will be substantially complete by the summer. It will seek to take account of changes in consumer behaviour to come out of the pandemic, such as a more pronounced shift to online and a desire to shop in more sustainable ways.
The Partnership has been trading for nearly a century. It has survived a world war and bombings, economic crashes and crises. Thanks to you, we shall also come through COVID-19 too and emerge stronger.
Partner & Chairman