Leading an employee-owned retail giant isn’t a disadvantage, says John Lewis Partnership Chairman, Sir Charlie Mayfield; it helps the company make the big bets it needs to flourish.
Taking over as Chairman of British high-street favorite the John Lewis Partnership in 2007, Sir Charlie Mayfield has led the firm through a period that has buffeted many of its rivals.
Despite a recession, budget-conscious consumers and fierce competition, John Lewis department stores and Waitrose grocery stores have thrived.
Sales at John Lewis rose 9.4 percent to 1.87 billion British Pounds (GBP) (US$3.01bn) in the first half of 2014, with like-for-like sales up 8.2 percent. Meanwhile, Waitrose grew its market share in a torrid grocery sector to 5 percent and recorded on average 670,000 more customer transactions a week than in the comparable period in 2013.
Both retailers have significantly expanded their online service. Web orders were up 54 percent at Waitrose in the first half of 2014 and they account for around a third of sales at John Lewis. The Partnership is also still expanding its high-street footprint; John Lewis aims to increase its number of UK stores by more than 50 percent to 65 by 2023.
In a world where many brands and retailers are finding consumers increasingly fickle, the Partnership has retained the deep affection and loyalty of its customers with such popular product and service innovations as the offer of free coffee to Waitrose shoppers and the group-wide ‘click and collect’ service.
After joining the Partnership in 2000 as Head of Business Development, Mayfield stepped up to the Board as Development Director in 2001, and was charged with formulating the Partnership’s online strategy. He then served for two years as John Lewis Managing Director prior to becoming Chairman in March 2007.
The John Lewis Partnership is owned by its 90,000 permanent staff, and comprises 43 John Lewis shops, 329 Waitrose grocery stores, an online and catalog business, a production unit and a farm.
ConsumerCurrents met Sir Charlie at the Partnership’s headquarters in London’s Victoria to discuss the particular challenges of leading an employee-owned business, operating in a highly competitive, ever-changing retail landscape and developing strategies to succeed in an omnichannel environment.
The grocery market is tough right now. How has Waitrose gained market share?
By consistently hammering away at shoppers’ perceptions of price. People have tended to think Waitrose is more expensive than it is, but we have been progressively making headway with our [budget] Essentials range, and with Brand Price Match messages.
We have also relentlessly focused on innovation. Customers want quality, newness and innovation, and we invest a lot in them. We’ve also been investing in the shopping experience. Supermarkets can be functional places, but our focus has been on making the Waitrose experience special through good wine and charcuterie offers. We are putting more cafés and juice bars in stores and enhancing bakeries, and adding spaces for events such as food tasting.
We are also making good progress on being more customer-centric. We now have 5 million myWaitrose cards. It has proved a great success in encouraging lighter shoppers to spend more, while encouraging loyal customers to keep shopping with us.
It’s all about relationship building. Simple schemes, such as offering free coffee and newspapers, have a high perceived value, and help people make their Waitrose shop a daily ritual, as well as reflecting the brand’s hospitality and warmth.
Unlike other supermarkets, Waitrose has many regular, but infrequent customers, who shop lightly with us. Data from the myWaitrose program allows us to identify more accurately what would appeal most to different customers, so we can tailor promotions better than ever before.
How is the Partnership staying relevant in a fiercely competitive retail landscape?
The traditional retail market has been defined by space and the need for high sales densities, but technology is changing the way customers shop. Sales densities remain important, but they aren’t the only crucial factor.
We have relatively less space than some retailers, but our ‘click and collect’ service makes the John Lewis brand much more accessible, as customers can collect John Lewis orders at 325 Waitrose stores. It’s a brilliantly convenient way to shop and a great example of how we can use the overlap between the two brands to our advantage.
“Our ‘click and collect’ service makes our brand more accessible.”
Click and collect is growing at an almost startling rate. We have recognized that convenience really matters to customers. You can no longer base a business model on the belief that someone will drive for an hour to visit your store, no matter how fantastic it is. If there is a closer, more convenient one, they will shop there instead. Convenience is key and we have started to take the brand closer to people with our first Waitrose at Kings Cross station in London, and the 3,600sqft John Lewis at Heathrow Terminal 2.
We also need to make sure that, if the customer is making the effort to go to the shop, the visit has to deliver a value-adding experience. It has to offer inspiration, ideas and knowledge from the Partners (staff).
What challenges does the omnichannel environment present for JLP?
Logistics and supply chain are absolutely mission critical, and we have developed our understanding of that partly because of our presence in both retail and groceries.
The creation of our logistics hub at Magna Park, near Milton Keynes, is one of the most important things we have done in the last 10 years. It gives us a supply chain with the agility to deliver to shops flexibly, frequently, accurately – and therefore cost effectively.
Having the supply chain capability to pick orders in hours for next-day delivery is difficult and expensive, but it’s enormously worthwhile and gives us an important competitive advantage, one we are continuously investing in. We are building another 600,000sqft facility at Magna Park and adding a Waitrose national distribution center. This will be supported by investment in systems, which is essential for the businesses’ improvement.
The group is famous for being an employee-owned partnership. What are the benefits of running the business on this basis?
The employee-ownership model is overwhelmingly beneficial, because the partners’ engagement with the business is so much greater. They are invested in the company financially, professionally and socially. Our AGM takes place with 70 partners who are elected from the business who work in it every single day, and they know what’s going on. Their engagement is greater than that of most shareholders.
Our focus on innovation and on investing in our partners’ capability stem directly from our ownership model. One of the things I most enjoy about my job is seeing our partners build up this capability over time, like the amazingly knowledgeable people in our large electrical departments. The food technologists at our research and development (R&D) center don’t just wake up one morning being great at what they do, they have continuously developed their capabilities throughout their careers.
The Partnership model also allows us to focus on the long term; we can invest more money in our pricing strategy, even though it may not be the best thing for profits this year.
How does JLP’s Partner first’ attitude affect decision-making?
It means that big decisions can sometimes take longer to make, but the fact that we will get there together makes us stronger.
Our pensions review is a good example. I am hoping we will get agreement next year to halve the rate of accrual for our final salary scheme and replace it with a defined contribution (DC) scheme. That’s a pretty radical change, but if we carry on as we are, in perhaps 20 to 30 years’ time the Partnership may be under threat from an overhang of risk, or we may have to mitigate that to such an extent that the bonus will eventually dwindle.
So there is a choice between the short term and the long term, and you must decide how to strike the right balance between them. This is fundamentally different to other organizations, where a pound that does not go to the employees goes to the shareholders. A partnership creates a completely different construct around that type of decision making.
How does the demographic nature of the Partnership affect the way you manage the business?
It changes how we approach problems. For example, we are changing the way we do personnel, administration and systems, and it has not worked as well as we had hoped.
In July, the Partnership Council was forthright in its unhappiness about this, so I commissioned a report that validated some of those concerns. My executive team will report back to the council on what they are going to do about it.
That’s a very tangible sign of the Partnership Council effectively raising its opinion up through the business, for messages to be heard and acted upon. It does a very good job of holding management to account.
We also have a Partnership Board, and its elected directors are absolutely integral to our big strategic conversations. The board’s character is enhanced enormously by having elected directors who care passionately about the Partnership.
Does the Partnership model lead to a different kind of relationship with suppliers?
We look to develop long-term relationships with suppliers which we think leads to innovation and better products. For example, we’ve worked with one bedding company for 30 years. They have come up with better, much lighter versions of synthetic duvets for us with similar characteristics to down equivalents. Because they have long-term confidence in their relationship with us, they are not afraid to invest in R&D. It’s very difficult to get this if you just have a transactional relationship with your suppliers.
Pork is another great example. Most pigs are farmed indoors so they can be protected from the sow rolling over them. One of our suppliers, a Danish farming co-operative, has bred sows with lower mortality rates for their piglets. The result is better husbandry, better productivity and better pork. You don’t get these kind of innovations when you are haggling with your suppliers over pennies.
JLP is one of the UK’s leading multichannel retailers. How do you plan to stay competitive in this respect?
Logistics and systems are key. We have to make a significant investment in systems now. It’s difficult to achieve, because you have to do it in flight and it’s a complex architecture due to the range of products we sell. Even though the numbers are painful, we have to make that investment to make sure we have a systems architecture that is fit for the future.
From an ownership standpoint this is not profit maximizing. Depreciation for systems is over five to 10 years, compared to 30 years for a store, which creates a drag on your profit and loss on top of the actual cost.
If you are in a business driven by executive remuneration or short-term profits, you have a disincentive in taking those big bets. But we know we are in this business today, tomorrow, next year and beyond, which enables us to take the longer-term view.
It’s also vital to understand the different cost and profit dynamics of the online and offline models. Shops are a fixed-cost business, whereas online is a variable cost model, and if you do both you have to figure out the blend between the two.