As Britain’s retailers reported on what for most was a successful holiday season, one of the biggest and most storied of all warned that it expects a particularly difficult year ahead.
Employee-owned John Lewis Partnership said Thursday that Brexit-induced inflation and a rise in online competitors are increasingly pressuring earnings. Such is its concern that the owner of John Lewis department stores and Waitrose supermarkets plans to make a “significant” cut to its annual staff bonus, widely regarded as a barometer of the market’s health.
“We expect both inflationary cost pressures and competition to intensify in the market as a whole,” the London-based company said in a statement. “The rate of retail market sales growth may slow and the rate of profit growth that is achievable will be affected by margin pressure.”
John Lewis’s caution echoes rival Next Plc, which last week lowered its profit forecast. Both retailers are concerned that rising expenses and a squeeze on consumer spending will pinch industry profits. For John Lewis, the shift by customers to online from brick-and-mortar stores is another cloud on the horizon for a business known for its e-commerce prowess.
“If one wants an indication of how tough the retail market is today, one need look no further than the John Lewis trading update,” David Stoddart, an analyst at Edison Investment Research, said by e-mail.
The consequences for the industry of a plunge in the pound since last year’s Brexit vote is a particular concern for John Lewis Chairman Charlie Mayfield.
“The drop in sterling is a dog that hasn’t yet really barked,” Mayfield said on a conference call Thursday. “Lots of retailers have hedged their currency positions and they will gradually unwind over the next year. How much of that inflationary pressure is absorbed by retailers and how much is passed on is the million-dollar question. It’s one of the most significant factors hanging over the year ahead.”
The potential bonus cut comes as a further blow to John Lewis’s 90,000 workers, who have seen the rate of reward reduced in each of the last three years.
News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.