On Thursday the John Lewis Partnership will report half-year results to July, which are likely to show profits ‘close to zero’ on total sales of around £5 billion.
This is an extraordinary state of affairs from Britain’s most successful and respected of retailers, and shows once again the enormity of the problems facing shopkeepers on the High Street.
The reasons for the industry’s troubles are well-rehearsed and multiple.
Struggle: John Lewis will report results which are likely to show profits ‘close to zero’
They include the rapid growth of online retailing, penal business rates, ridiculous planning laws, tight consumer spending, price deflation and, in some instances, lousy management. Together these have transformed the retail landscape beyond recognition and will continue to do so.
In the case of John Lewis, the problems stem directly from heavy discounting on profit margins in order to keep its promise of price matching against ailing competitors such as House of Fraser.
This comes at a price. Analysts fear the discounting could cost the group as much as £20m against last year’s £26.6m pre-tax profit. It has also been investing heavily in new IT systems to stay ahead of the game.
Sir Charlie Mayfield, JLP’s chairman, is brutally frank about the challenges he and the industry face. As he points out, the profitability of the retail sector has nearly halved over the past five years and there are no signs it will improve. And the reason? Margins have been shot to pieces.
Price inflation has been absorbed by retailers, with shop prices falling by an average of 5.6 per cent between April 2013 and July this year. That’s great for the consumer but not so good for the industry or jobs.
Put simply, there is more retail space and capacity than there is demand. And much of that capacity is coming from the soaring volume of online deliveries emerging from Amazon warehouses.
Yet Mayfield rejects some form of ‘Amazon tax’, which was floated by the Chancellor, Philip Hammond, in response to lobbying for a more even playing field between online and physical retailers.
Mayfield makes an interesting point. Any such tax will have to be carefully designed as it could be counterproductive to penalise retailers such as Amazon, or indeed home-grown operators such as Asos, for having an efficient business model.
It should also be borne in mind that physical retailers such as JLP are expanding their own online presence. Beware the law of unintended consequences.
Instead, Mayfield argues it would be far better to stop online retailers from reducing their tax bills by not paying staff properly.
It’s common knowledge many of them are avoiding tax by forcing workers into zero-hour contracts or low wages for long hours.
As he puts it, this is an issue of morality as much as competition. Once again, he is on the money. The truth is that no one, certainly not Whitehall’s bureaucrats, has a clue what the High Street will look like next year, let alone in five years’ time.
What is sure is that the entire tax structure – not only the rights and wrongs of business rates – needs to be reviewed from scratch.
Who better to head such a review than Sir Charles himself.
Penny at the wheel
Who said there could never be a female James Bond?
Penny Hughes may not have a starring role in the next 007 film, but she gets to be in the driving seat at Aston Martin.
The former Coca-Cola director is the new chairman of Bond’s favourite car maker, which plans to float on the London Stock Exchange later this autumn.
If early price tags of around £5 billion are correct, Aston Martin will zoom straight into the fast lane at the top of the FTSE 250.
It’s one of the City’s sexiest floats for years so it’s no surprise the price is being talked up to the giddy heights reached by rival, Ferrari, listed in New York.
It’s a great story: the 105-year-old car maker has been bankrupt seven times and is now back in profit after the most dramatic comeback. But it still has net debt of £815m. That’s why Hughes, who cut her teeth at Vodafone, RBS and Morrisons, should go for an easy ride.
She should resist pressure from the Italian and Kuwaiti private equity houses, which own the majority of Aston Martin, to set too high a price. Otherwise she might find herself relegated to being Miss Moneypenny.