In John Lewis’s Christmas advert, a fire-breathing CGI dragon caused havoc. Peak-season trading at the employee-owned business wasn’t quite that bad because Waitrose is destined to record same-again profits for the full year of £200m-ish. But profits at the department stores are unrecognisable.
The phrase “substantially lower” than last year’s £115m probably implies a profit figure as thin as £50m. Two years ago, the department stores made £258m. In those circumstances, the exit of Paula Nickolds, boss of the department stores, was inevitable. Her operation failed to pull its weight. Waitrose toilers, who may be deprived of a bonus because of shortfalls on the other side of the partnership, might be less diplomatic.
None of which is to deny that Nickolds inherited incendiary conditions when she got the job three years ago. House of Fraser and ailing Debenhams have been thrashing around with price cuts, which is a problem for a high-service competitor with a “never knowingly undersold” promise.
All the same, the sales decline in the department stores over the peak selling season was only 2% – weak but not catastrophic. The dramatic fall in profits would seem to owe much to a failure to adapt. Personal shopping assistants are nice adornments, but gritty management of margins and costs is what counts in the current climate.
Outgoing chairman Sir Charlie Mayfield has left a farewell plan for his successor, former Ofcom boss Dame Sharon White, in the form of a leaner, and centralised, management structure that, along with other changes, aims to save £100m a year “over time”. He might have thought of saving serious sums sooner. White could usefully add an instruction to the property department to shove some financial pain onto landlords: some of their shopping centres wouldn’t survive without John Lewis’ presence.
It’s still wrong to describe John Lewis as being in crisis. The balance sheet is healthy, the brand is strong and the online operation is slick. The partnership model isn’t under threat, as it was in the 1990s.
But, as with the now-formulaic Christmas ads, the department stores require fresh thinking. White is an outsider with no retailing experience, which many regard as a problem. It may be. Alternatively, she’s ideally placed to deliver a few home truths.
Willie Walsh leaves IAG on a high
He made his shareholders happy. Willie Walsh, the soon-to-depart chief executive of International Airlines Group, owner of British Airways, would probably settle for that assessment of his career. He never courted wider popularity, rivalled Ryanair’s Michael O’Leary for bloody-mindedness and prided himself on reading the consolidation game better than his rivals.
IAG, created in 2011 when Walsh merged British Airways with Iberia, has clearly defied the early sceptics. Both airlines were loss-making at the outset but Walsh’s cost-cutting transformed the position. BA’s profit margins are among the best in the industry and IAG is now an airline conglomerate worth £12bn.
Yet let’s not hail a soaraway success too early. As profits have improved, BA’s reputation has dived. A huge IT collapse in 2017 and an enormous data breach in 2018, for which the airline faces a £183m fine from the Information Commissioner’s Office, hinted at under-investment in basic areas.
Last year’s strike by BA pilots, traditionally a deeply conservative bunch, suggested profit-maximisation had gone too far. The airline was among the worst rated for food, seat comfort and value for money in the annual Which? poll at the end of last year.
A consumer-facing business can be unloved and financially successful for a long time – just look at Ryanair. BA, however, is not a low-cost carrier and competes in a part of the market where reputation tends to count in the end. The verdict on Walsh’s captaincy will have to wait a few years.
BlackRock joining Climate Action 100+ should be first green step
BlackRock, the world’s largest asset manager, has clearly been stung by the allegation that it engages in “greenwashing”. Or perhaps it’s been thinking about joining the Climate Action 100+ investor lobbying group for a while. Or it might have been a prod from clients that did the trick. Whatever the motive, it is good news that BlackRock has signed up.
Let us hope, though, that the chief executive, Larry Fink, a man who genuinely has power to change the corporate behaviour via BlackRock’s huge shareholder clout, ensures that his fund managers actually implement the new approach.
He could set the tone by ordering an overhaul of BlackRock’s huge passively-managed portfolios to ditch the worst corporate polluters. It would require re-thinking BlackRock’s own product offer – but that’s rather the point of these initiatives.