Andy Street needed some space. It was the day after HBOS had been saved from the brink of collapse by Lloyds in September 2008, and Lehman brothers had gone under three days before. The managing director of John Lewis wanted to be alone to absorb what was going on.
Street grabbed a bunch of newspapers and went to a Starbucks close to the retailer’s headquarters in central London. He sat down with a mug of coffee and delved into what was happening. The more he read, the more he feared for John Lewis.
The department store chain, like all retailers, survives on consumer confidence. With the banks falling like dominoes, this was rapidly disappearing.
Something else was making Street uneasy. He was six years into an investment programme to improve the stores, the product mix, and the website. It was just starting to show results. If he pulled the plug now, all that effort and investment would go to waste.
Street finished his coffee and resolved to stick to the plan. John Lewis — the sleepy, conservative high street chain — was going to do the unthinkable. It would continue to invest through the worst recession for decades. And with that, Street charged back to work.
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The recession was a blessing in disguise because it made us think, how are we going to change?
His decision was vindicated last Wednesday morning when the business announced a 12% rise in sales to £3.2 billion for the year to January and a 22% increase in operating profit to £201m.
The staff bonus figure topped it off. The 76,000 “partners”, who own the business, were awarded 18% of their annual salary, equivalent to nine weeks’ pay.
The response in the store on London’s Oxford Street was triumphant. Staff had not seen a return of that size since before the recession. As they cheered and chattered about what they would do with their windfalls, a bystander could easily have assumed the good times were back. Never assume.
One day before John Lewis’s results, the British Retail Consortium (BRC) sales in February were the weakest for almost two years. The day after, Home Retail Group, owner of Argos, issued a profit warning. Sales at the discount catalogue chain were down more than 4% in the eight weeks to February 26.
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The BRC blamed rising household bills and falling consumer confidence for the decline in sales. John Lewis’s customers may be better off than the average Argos customer, but they are not immune to rising fuel prices or the VAT increase, so why does it continue to thrive when the rest of the high street flounders?
Street puts it down to the recession. “It galvanised us like nothing else,” he said. “It was a blessing in disguise because it made us think, how are we going to change, what are the new opportunities? It was blindingly obvious that if we just sat back we were not going to thrive.”
The scale of change has been far-reaching. A new distribution centre was built, the website was revamped and new television adverts became a talking point. Fresher brands were brought in and others were restricted to the website or dispensed with. The department stores, which had entered the new millennium as tired emporiums selling tweed jackets and dress patterns, suddenly became stylish.
The partnership, which includes the Waitrose supermarket chain, has invested close to £4 billion in the past 10 years. Customers have responded well, but will the mortgaged middle classes continue to spend when interest rates go up? Will all Street’s hard work make a jot of difference when there is less money to spend?
Peter Ruis, buying and brand director for John Lewis, hopes so. He has worked tirelessly on the transformation of womenswear and accessories.
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He made Mulberry, the fashionable and expensive leather goods brand, the centrepiece of the bag department. “We have always sold Mulberry, but we have expanded the collection over the past five years. We used to sell a very limited, safe collection, but we have added more fashionable lines and now it is our second-biggest bag brand by sales.”
Ruis brought in new names such as Aspinal of London, the luxury gift company, Orla Kiely, another trendy bag brand, and the fashion stars DKNY and Guess. In the jewellery departments, some stores have started selling Gucci and Tag Heuer watches.
Convincing the more fashionable businesses to get into bed with John Lewis was not always easy. Ruis, formerly at Ted Baker, the fashion retailer, spent a lot of time persuading their guardians it was not brand suicide. Neil Clifford, chief executive of Kurt Geiger, the shoe retailer, remembers a meeting with Ruis in 2007.
“I met him in the cafe in the Oxford Street branch. We were already selling a small, safe range through John Lewis, but Peter wanted more of the fashionable stuff.
“We did take some convincing, but when you start to drill down to the demographics, it is one that most retailers would die for because of the loyalty to the brand and the sales densities in the stores. It just needed to be more contemporary and appropriate for brands like us and that is what they did, by investing in stores and merchandising.”
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Kurt Geiger’s in-store sales have since tripled. Ruis also added younger brands to womenswear, such as Mango and Oasis, but his buyers will choose only products that will not shock the more traditional John Lewis customer.
The key, according to Street, is to be contemporary without being “bleeding-edge trendy”. The formula seems to be working. Emily Owen, 22, who works in PR, was shopping in the Oxford Street store last week. “I have fallen in love with John Lewis,” she said. “It is not that it has a better range of concessions than other stores, it is just that shopping here is so much nicer.”
Compromise was also crucial in the marketing department. Craig Inglis, the marketing director, joined John Lewis in 2008. He was tasked with selling to the public the new-look chain, which now has 32 sites, without alienating the existing customers.
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Finding the right balance was something Adam & Eve, the advertising agency, struggled with, initially. Its first attempt at the 2009 Christmas campaign ended up on the cutting room floor. The campaign — showing a sequence of people dreaming about their Christmas presents — was deemed a little strange for John Lewis.
It was replaced with an ad showing children playing with gifts intended for adults — one boy played with a laptop, a girl tried on a woman’s necklace. The choice of backing song, Sweet Child O’ Mine by the American rockers Guns ‘N’ Roses, gave it the edge that Inglis was after.
It also propelled the song back in the top five of the music chart — and the same happened with Billy Joel’s She’s Always a Woman and Ellie Goulding’s version of Your Song in the subsequent ads. James Murphy, co-founder of Adam & Eve, said: “Getting singles into the charts was always the preserve of Levi’s ads — it is amazing John Lewis is doing it.”
The store has also broken new ground on the internet. The upgraded website was launched in 2009. Millions was invested in making it look good, but Street took a risk last year that set it apart.
The catalyst was a mocking ad from Dixons, the electrical chain, in 2009. It urged shoppers to: “Step into middle England’s best-loved department store, stroll through haberdashery to the audiovisual department where an awfully well brought-up man will bend over backwards to find the right television for you — and then go to dixons.co.uk and buy it.”
In response, Street extended the “never knowingly undersold” promise to online rivals such as Dixons, Amazon and Play. “We match all of them on price now. If we were not a partnership, we would have been forced to do the wrong thing. To prop up the share price in the short term, we would have been forced into doing the opposite of what we did.”
Praise for the ownership model was ringing at a soiree to mark the results last Wednesday evening. Charlie Mayfield, chairman of the partnership, said: “I believe passionately what we have done and what we continue to do is enabled by our model of ownership.
“I’m always in danger of sounding a bit smug and I have no interest in the partnership being the smuggest retailer on the high street, but I genuinely believe this is a better way to run a business.”