We’re getting used to shocking headlines on the UK’s battered retail sector lately, but today’s news that John Lewis staff will receive their lowest bonus since 1953 is really saying something.

In a letter to partners today, new chair Sharon White reported a 23% fall in profits for the employee-owned company. Despite a “solid” performance for Waitrose, this is the third year of declining profits across the Partnership as a whole.

This means just a 2% bonus for partners. It also means a strategic review will take place to reverse the decline which could take up to five years to show results. As part of the strategic review the company will look at “right sizing” its stores across both brands “through a combination of new formats and new locations, repurposing and space reductions of existing stores; and closures, where necessary”. 

So, expect some gasps from Middle-England if house prices drop in some towns due to the loss of their prized-Waitrose store. 

What’s perhaps the most alarming here is the fact that John Lewis and Waitrose are two of the most-loved retail brands in the UK and they’re still struggling. Waitrose is currently the Which? Supermarket of the year and John Lewis recently topped a YouGov poll for the high street’s most recommended brand.

Equally with a good website presence and the ability to offer ‘click and collect’, the company has invested heavily in integrating their physical retail presence with their digital one.

However, the Waitrose brand faces a new challenge online as its supply agreement with Ocado comes to an end in September. Waitrose has had a positive effect on the partnership’s overall profits and brought in a profit of £213m this year, up £10m from last year. This is impressive in an increasingly competitive environment with margins ever squeezed by the German discounters. 

Losing the Ocado deal to Marks and Spencer, means the company must invest heavily in Waitrose.com, which they are doing by recruiting 2,400 new staff and building a new fulfilment centre in Enfield to manage demand for Waitrose products online.

While the problems faced by retailers are well-known, spare a thought also for the landlords dependent on rental income from thriving retail units. 

Two of the biggest retail sector landlords - Hammerson and Intu Properties - have seen millions of pounds wiped off the value of their shares this year.

Hammerson owns the famous Bullring in Birmingham, the Bicester Village designer outlet - which has already hit the headlines due to a dearth of Chinese shoppers - and London’s Brent Cross shopping centres. Intu owns Manchester’s Trafford Centre with its showpiece John Lewis store, the Metrocentre in Gateshead and Lakeside shopping centre in Essex. 

Shares in Hammerson have lost more than a third of their value since the beginning of the year, while Intu’s shares have more than halved in value this week after the company was forced to abandon an emergency fund raising.

In a trading update yesterday Intu blamed “extreme” market conditions for its failure to raise extra funding from investors and said the estimated value of its portfolio of shopping centres had dropped 22% to £6.6bn in 2019.

Now with the threat of coronavirus keeping people away from public places like shopping centres, the outlook over the short term for retailers and their landlords is looking very uncertain. 

One thing we can be sure of is our town centres are being forced to evolve and will never look the same again. The question is what will replace the empty shop units and get people back on the high street again? 

My prediction is a growth of new high-quality housing targeting the young and the old to encourage more people out of the suburbs and into thriving new communities with cafes, bars and convenience stores close to hand. I also expect to see more flexible working spaces where the self-employed can rent a desk space and benefit from the networking experience.

Time will tell, but town centres do evolve. There will be opportunities for investors who can catch hold of the vision, as consumers will always be looking for new ways and places to consume, in addition, of course, to the convenience of Amazon’s next day delivery.

Five year performance

(%)
As at 4 Mar
2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
Hammerson -15.8 8.0 -20.2 -9.6 -46.3
Intu Properties -11.9 -1.9 -24.2 -39.7 -94.5

Past performance is not a reliable indicator of future returns

Source: FE, as at 4.3.20, total returns in local currency

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Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

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