The total UK non-food offline (stores and mail order) market declined 0.3% in 2016. While DIY & gardening and essential health & beauty items propped this up from falling further – both sectors John Lewis is less exposed to – a 1.0% decline in physical store sales signals a widespread issue for UK retailers, particularly since John Lewis opened two new shops during the year. If John Lewis, which has a best in class physical store proposition, cannot grow store sales, then who on the high street can? It is, however, investing significantly to prevent a further weakening in store performance with the launch of a self check-in service for click & collect customers, and the upcoming initiative of shop floor staff in 20 stores being equipped with iPhones to allow them to check stock availability for customers, provide product information and place orders.
Sales across each of its core divisions outperformed their respective markets, with own brand womenswear the key highlight with sales rising 6.8%. The addition of Modern Rarity adds to a strong stable of brands targeting a broad audience with clear design and style identities, and successfully avoids product overlap which is an issue that has plagued M&S. John Lewis has spearheaded investment and development in making smart home technology accessible for a larger audience. It now has Smart Home areas in three of its stores, which contributed to a 16.7% rise in audio and smart home sales. Taking the lead in an immature market will allow it to become a trusted destination for innovative smart technology, differentiating it from rivals and ensuring it is the partner of choice for brands.
Operating profit took a small tumble following supply chain investment and weaker store productivity, though an operating margin of 6.4% is still higher than rivals Debenhams and House of Fraser. The board maintains its strict stance on protecting the balance sheet, showcased by the decision to lower the partnership bonus to 6% to allow for continued investment during 2017, and to help defend against margin erosion as suppliers pass on higher costs.
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