John Lewis profits drop 18%

John Lewis has been hit by the 'extremely challenging' trading conditions. Will its presence in the shiny new Olympic Westfield mall help?

by Dave Waller
Last Updated: 06 Nov 2012
Sales growth slowed to 1% for its John Lewis stores and 4% for its Waitrose chain, which helped send profits for the six months to July down 18% to £90.4m. That’s not great news. Of course it doesn’t help if you’re hamstrung by your claim to be ‘never knowingly undersold’. As chairman Charlie Mayfield admitted to the BBC, that just leaves the chain at the mercy of others’ intense discounting. When they drop, you have to drop further.

Profits also had to shoulder the burden of added investment – up £99m to £254m to the end of July – which went into expanding Waitrose deliveries and improving the website. John Lewis also shelled out £35m on its latest store – it was the first store to commit to the new Olympic Westfield site in Stratford, creating 800 new jobs in the process. The company is clearly happy to take a hit to the coffers now, with the aim of benefitting in the long-term. Sceptics will point out that Westfield's fortunes may well run the other way.

Not yet though. The new site was opened yesterday in the requisite puddle of glitz, with Boris Johnson and a Pussycat Doll. Johnson took the opportunity to bark that the streets of Paris are alive with talk of ‘Le Westfield’ and the opportunity it offers for French financial politicians (i.e. your Dominique Strauss-Kahns) to placate their wives with a discounted Hermes scarf.

It’s rare these days that our politicians have much footing on which to mock their international counterparts. And Boris’ cockiness wasn’t the only vestige of brighter times: this is a £1.4bn investment in consumerism – 300 shops, 70 restaurants, a 14-screen cinema, three hotels, a bowling alley and the UK’s largest casino. Queues were forming before it opened at 8am with Forever 21, the American clothing chain, offering £50 vouchers and goodie bags to the first shoppers in its line.

Hopes are clearly high then, and that’s to be supported. Westfield’s owners have done their utmost to make the place take off - some 70% of visitors to the stadium and park will be funnelled straight through Westfield – and will be hoping they’re inspired by the rush of their hammer-throwing high to perform Olympian credit card feats on their way out. It expects to pull in a £700m turnover in the first year and£1bn a year by 2014.

But there was an ominous metaphor of what may be to come: note the 5ft by 2ft glass tile that fell 30ft from the ceiling and smashed next to HMV. While the glitz may grab the eye, the whole thing has a certain fragility: how will Westfield fare against a struggling global economy once the caravan of running, jumping and throwing things had passed through?
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Finance Retail

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