UK high street stalwart John Lewis has said it might be forced to suspend its annual staff profit share for the first time since 1953.
The department store group, which is Britain’s biggest employee-owned business, said on Thursday its board would “need to consider carefully” whether the “payment of a bonus is prudent in the light of business and economic prospects”.
The annual staff bonus has been reduced every year for the past five years because of difficult trading conditions.
The group, which also owns the Waitrose supermarket chain, also reiterated its forecast for a “substantial” drop in annual profits, despite better than expected sales over Christmas and New Year.
On Thursday Paula Nickolds, John Lewis managing director, said seasonal profits had been dragged down by the group’s longstanding “never knowingly undersold” promise to match rivals on price.
“Promotional activity [on the high street] was 20 per cent to 30 per cent higher than last year . . . With never knowingly undersold we match that in good times and in bad and were drawn into that activity.”
Ms Nickolds added there were “no plans” to end the price-matching promise.
Richard Hyman, independent retail analyst, said the staff bonus announcement was “the most significant thing the group has said today”, and that it could affect customer perceptions of the brand.
“There is no danger of John Lewis losing sight of its heritage,” he said. “But I think there’s never been a time before when the John Lewis leadership has had to struggle so much with reconciling that vision with the realities of retail trading.
“It really reflects just how difficult retailing is.”
John Lewis department store like-for-like sales were up 1 per cent year during the seven weeks to January 5 compared with last year, while Waitrose sales rose 0.3 per cent, excluding fuel.
The group said, however, that it still expected full-year profits to be “substantially lower” this year because of slower sales growth, margin pressure and higher costs.
Finance director Patrick Lewis said that while no decision on this year’s bonus would be made until March, the group was in the unusual position of not being able to forecast near-term performance because of political and economic uncertainty in the UK.
“Our forecast this year has a higher level of volatility given some of the decisions the country has to make over the next couple of months,” he said.
John Lewis said in September that underlying profits in the first half of its financial year had dropped 99 per cent to just £1.2m as the group invested in rebranding, staff, technology and new ranges. It warned at the time that full-year earnings would be well below those generated in the previous period.
John Spedan Lewis, the son of founder John Lewis, introduced the first profit-sharing scheme in 1920, along with a representative staff council. He went on to make the business an employee-owned partnership. In 1957, he told the BBC that he wanted to tackle inequality, which was “a perversion of the proper working of capitalism”, and that “substituting partnership for exploiting employment” made work “something to live for as well as something to live by”.