It's a tough old world, British retail. Lightning-fast, unforgiving and cut-throat competitive at the best of times, in March retail saw the sharpest drop in activity in 16 years. With customers feeling gloomy, shop-keeping is not the easiest place to make a living. Booms and crashes will, of course, come and go, but maintaining a good name on the high street over decades is rare. M&S, once Middle England's darling, has had a tough 10 years, its new boss a fight on his hands; Boots is now private, hidden and has just unhappily parted company with its chief executive; the big supermarkets are slugging it out in an ugly price war, with the forward focus for market leader Tesco now overseas. Few reputations appear as steady as that of the John Lewis Partnership (JLP), set up by John Spedan Lewis in 1929, on the eve of the Great Depression, when he transformed the draper's firm set up by his father in 1864 into a radical, profit-sharing group.
When Verdict Research performs consumer polls of the UK's most popular retailers, John Lewis consistently comes top. It entered MT's Most Admired Companies list last year for the first time - under new rules permitting privately held organisations to be considered - and it immediately ran away with the top award for quality of goods and services and stole overall 11th position. The only higher placed retailer in the 230-company total was Tesco.
Although smaller than the big boys with which it competes - and with next to no international footprint - the JLP is one of the UK's top 10 retail businesses, with 28 department stores and 219 Waitrose supermarkets. It turned over £8.2bn in 2010, on which it made a pre-tax profit of £367m. It has 76,500 'partners' (what others call employees) and holds a unique place in British society. Most importantly, the staff own the business. If you stack shelves at Waitrose or sell bed linen at Peter Jones, you regard yourself as a cut above the till jockeys at Asda or Debenhams. You are the creme de la creme, with skin in the game.
John Lewis is unlikely to get involved in a scandal involving its products being assembled by juvenile sweated labour in Bangladesh. It gets left alone when the black-hoodied anarchists start trashing Oxford Street and giving Philip Green a serious reputational headache. Neither is it going to do some dodgy deal involving shady, heavily leveraged private equity fly-by-nights from Iceland who mortgage all the real estate to a company in the Cayman Islands. It is a very proud, tribal, bourgeois organisation, like Radio 4 or the National Trust: solid, respectable, dependable. Not glitzy, but 'never knowingly undersold'.
It skilfully communicates good messages. The montaged television commercial last year, which followed the progress of a young girl into adulthood to the tune of Billy Joel's Always a Woman, scored well over two million hits on YouTube and priceless column inches in the Daily Mail. It was high-class schmaltz, but it struck a chord and was cleverly executed. Fully grown blokes - who would never be seen dead with a 500 gram bag of Waitrose arborio risotto rice - said they wept.
When it recently announced it was going to issue a savings bond to raise £50m capital - with interest quaintly part-paid in John Lewis vouchers - investors flocked in so fast that the offer was fully subscribed and closed three weeks early. This was despite the fact that the product wasn't covered by the Financial Services Compensation Scheme. Some 10% of the takers were its own staff. In today's tricky financial climate, that was going some.
So, in the good name game, JLP is without equal on the high street or online. As chairman, Charlie Mayfield is the keeper of that reputation's flame. We meet in the wine department of John Lewis on Oxford Street. It's late morning on a Tuesday and slightly quiet - the immaculate ranks of costly white burgundies and Californian pinot noirs aren't flying off the shelves.
First impression is that although he's now 44 - he was appointed chairman in 2007 - Mayfield appears youthful in his neat, but not flash, suit. When he first got the job and was taking a national newspaper round a Waitrose in north London, an elderly female shopper squawked: 'Who's that gorgeous man? Very sexy!'
Stuart Rose would have given her a hug. Mayfield, apparently, just blushed. He's welcoming, engaging in his clipped tones - and has already moved on from wine to have a good look at the crockery department.
Mayfield's is an unusual job, in retail or in business generally. There are few CEOs whose function when they get behind the desk each morning is to focus on achieving a success for the business, defined in the JLP constitution as being measured 'by the happiness of those working in it and by its good service to the general community'. Isn't that a slightly daunting thing to be faced by, day-in day-out, as he arrives in on the train from his wife and three kids in Berkshire ... keeping 76,500 people happy?
'It doesn't feel quite like that. There's the individual and the collective and you're never going to be able to keep 100% of the partners happy all the time. There are times when we have to make people unhappy to keep the whole happy. We have had a lot of difficult changes in the past few years. We've had to tell people change is coming and they don't like it when you have to tell them their role will disappear in two years' time.'
At Waitrose, there is a management restructure that will affect 3,000 positions. Bricks, mortar and their rents are costly, especially in the prime sites John Lewis favours. There is no room for slack. Mayfield sees huge potential and fatter margins in the lower overheads of online and John Lewis already sells £500m of goods this way annually. 'The textbook approach is to get everyone affected to reapply for their jobs, but we don't do that. We trial new structures, we interview everyone about their potential, we plan the change. In three years, 4,473 positions have been made redundant, but we've only lost 763 people. Redeploying 75% of those affected has been a good outcome.'
There has been plenty of grumbling along the way - and at John Lewis, grumblers feel it is their birthright to be heard. The weekly John Lewis Gazette is one of the noisiest and most free-thinking in-house rags around - the sort of publication that would make the politburos of some plcs have kittens.
So Mayfield expends huge amounts of his technocratic energy making sure he takes people with him. 'That happiness is only kept going by maintaining integrity and honesty,' he says. 'That's what builds trust with the partners. And I get judged by a 70-strong council, whose job is to hold me to account.'
Wouldn't it be easier just to command and control, without all the HR PC-ness of consultation? He must yearn for the simplicity of the approach he was taught at McKinsey: measure, analyse and just push the lever.
'There are times when our processes might be frustrating, but they remain our competitive advantage. The other day, I was in a Waitrose distribution centre that we had acquired from a rival. I asked a driver what differences he'd noticed since we took over. Before, he said, he'd just been told what to do by his management and now he was asked. He liked the difference.'
Mayfield learned some of the problems of leadership very early. A public school boy educated at Radley College, he shunned university and decided to go straight into the army. Wasn't this slightly controversial at the time? 'As a six-year-old in Germany, where my father was stationed, I spent all my time picking up spent cartridges on the training ground. I knew from very early that was what I wanted.'
After Sandhurst, he experienced the characteristically steep learning curve of a young officer. 'I was thrown into it and sent very early on to Northern Ireland. A 19-year-old in south Armagh - bandit country, as it was known. It was more responsibility than I was old enough or experienced enough to take. But I found the support network and made the right relationships, which were powerful and effective. I suppose it taught me self-reliance, confidence and the ability to work with people. Actually, the thing I like the most about being chairman here is the contact with partners. The most pleasure I get is visiting shops - it's always a good reminder of why we're here. I had a great day in Solihull last week.' How many people can say that?
He left the Scots Guards while still quite young and paid his own way through the business school at Cranfield and was awarded his MBA. Then he got a job as a marketing executive at SmithKline Beecham selling Lucozade. After four years of that, he grabbed a place at McKinsey, working in retail consultancy - and his rise to the top began. Mayfield got spotted by a headhunter, who recruited him for the vital role of head of business development at John Lewis in 2000.
What was his perception of John Lewis from the outside? 'I knew it only as a shopper. I quite admired it. But the more I saw and the more I peeled away at the onion, the more I liked. Not only a nice place to do business, but a better one.
'There's nothing like the commercial buzz you get from the tempo of trading. I missed that when I took on the chairmanship: you have to step away from the daily action. It was quite a wrench. You have to learn to operate to a different timescale. And you learn that success doesn't come from you as chairman, but from the others. My potential is entirely down now to the impact through other people.'
The turn of the century, when Mayfield arrived, wasn't the happiest of times for the partnership. The company was struggling and internal discontents had led to a partnership vote on demutualisation which would have led to windfalls of around £100,000 per individual. It was defeated. The whole episode and its gleeful media coverage were described by ex-DTI civil servant Sir Stuart Hampson, Mayfield's predecessor as chairman, as the low point of his career.
Mayfield likes new things and was an early fan of online. He quickly negotiated the acquisition of buy.com, a computer sales site, for less than £2m, beating Kingfisher. A far bigger deal was the alliance with Ocado, created in 2002. Getting into bed with three ex-Goldman Sachs bankers attempting a grocery delivery model that everyone was convinced would fail was always going to be controversial and he took a lot of stick for his faith. But Ocado is still there, now floated and selling thousands of crates of Waitrose products.
Mayfield transferred the 29% Ocado holding to the John Lewis pension fund, to avoid conflicts of interest in supplier negotiations. That stake was sold for £152m in February, which leaves Waitrose free to ramp up its own home delivery site and go for a piece of the action, without losing a slice of the cash to Ocado.
This means Mayfield is now involved in fierce, close combat with a company of which John Lewis is the main supplier. And both are competing for similar turf - to be strong in London and the south-east. 'Ah, but is it competing or collaborating? You have to go back to the origins of the deal. It was an extremely immature market. Ocado has helped us, because Waitrose now has a larger share of the online market at 20% than it does offline - only 5%. The market is growing very fast and we cannot just rely on Ocado, so we need a better Waitrose offer. The deal we now have - a 10-year branding and supply agreement - secures both sides, because we expect online groceries to double in the next two to three years. We simply couldn't have all our eggs in a basket we don't own.' You wouldn't have to be a cynic, though, to see trouble ahead. Not least if the Ocado service remains better.
In the meantime, 2010 was a good year for JLP. When its results and the partners' bonus pot were announced in March, amid the traditional whoops of delight in John Lewis Oxford Street, each of the 76,500 staff members received an extra 18% of their annual salary. This was a total of £194.5m and an average of £2,700. 'We're not highly paid bankers,' noted Andy Street, the managing director of John Lewis, further suggesting that his organisation owns the acceptable face of bonus culture, 'so it means a lot'.
This year, however, is proving a different story. '2011 is going to be tough,' says Mayfield, 'tougher than last year, for all the obvious reasons. I don't think it's going to be a double-dip, just a long period of slow, stuttering growth punctuated by confidence moving up and down in response to events. Very different from the past 10 years when we've enjoyed a sustained increase in consumption.'
And how does he feel about the Government? Is it going about putting things right in the correct fashion? He's very careful in response, as party politics is a no-go area for a JLP chairman. 'It's important that the public finances should be in good shape. You don't have to look too far to see the result of lack of confidence in financial markets. But how fast is too fast (when it comes to cuts) or too slow? In business, you can set a clear intent, but adjust along the way, dealing with fresh situations as you find them. But you cannot talk or behave like that in politics - it's such a hotbed, in which people can only be 100% right or 100% wrong. In reality, life is different and complex.' Mayfield clearly finds the yah-boo world of politics not to his taste.
There's an added reason for his caution: there is a growing interest in John Lewis and its ownership model. Potential co-ownership has been latched onto by all the main political parties as an answer to government bodies that have run into trouble - the Royal Mail, parts of the NHS - and need to be taken off HMG's books and run more effectively. Then shadow minister Francis Maude and the Tories made a big play to sign up Mayfield and John Lewis before the election and failed, although JLP contributes to a governmental senior oversight group looking at co-ownership.
The problem is that its name is being plastered all over the headlines: 'Public sector can learn from the John Lewis co-op', 'Charlie Mayfield: champion of a kinder capitalism' and 'NHS staff get go-ahead for John Lewis co-ops'. Mayfield has contributed to that debate by a pair of articles printed in The Times, in which he loudly trumpeted the failures of the listed, joint stock model of company ownership. In one, he questions the pay level of 'a small coterie of senior management of partially nationalised banks' and he expressed disquiet about 'the growing imbalance we have seen in how risks and rewards are shared. In recent years, capitalism has run ahead of reason and fairness.'
Mayfield earned £868,000 in 2010. He gets the same bonus percentage uplift from his basic salary as everyone else. Would he like to earn more - rise to the level of Terry Leahy on a few million or even the heights of Bob Diamond? He laughs. 'I get well paid for the job I do. I support the linkage we have between top and bottom. Money is not my sole motivation. If your simple goal is huge accumulation of untold wealth, you'd be in the wrong business in JLP. There are other places for that. I think we are well benchmarked. What we don't have are long-term incentive plans and share options. They would be entirely inappropriate for us.'
There's nothing that gets up the noses of John Lewis people more than the notion that they are all part of some soft, hippy co-op or collective. That they're all a bit fluffy and 'nice', a bit 'Are you being served?'. Even slightly unworldly in their smug little club.
'We are tough here,' says Mayfield. 'Our constitution is most definitely not a philanthropic idea. It's a commercial idea. A competitive idea. It's our competitive advantage. It's not political, it's about engaging people. We create a culture of ownership and people feel valued. So they perform better. That is a very powerful performance lever.'
He believes those who advocate a 'John Lewis' solution for the Royal Mail, for example, have failed to understand how his organisation works and the state in which the Royal Mail finds itself. 'What is being proposed for the Royal Mail isn't the John Lewis model. The talk is of giving 10%-15% to the staff. But it's the wrong model and, sadly, probably 20 years too late. It's far weaker now than it was then - a lost opportunity. If you simply endow somebody in an impossible situation with a share certificate, it doesn't solve anything at all. Anyway, our partners don't own shares - the Employee Benefit trust does. That leaves us free to focus on the culture, not the share certificate.' He's right. It's harder to think of two organisations as culturally poles apart as the Royal Mail and John Lewis.
He's also keenly aware of the difficulty of transplanting the model into the NHS. 'Look. If you're a nurse, your primary motivation is caring for people. That's why you became a nurse. You are not an entrepreneur. That's fine. But you're going to get a serious misalignment for many nurses if you put them into a commercial entity and place them into a procurement process.'
So, what's next for Mayfield? Clearly, he has to get JLP through this downturn intact, but he has at least 20 working years left and he's highly unlikely to spend all of that at John Lewis. (Stuart Hampson did the chairman's job for 14 years and was only the fourth to occupy the hot seat since the beginning.) Mayfield would be a hot catch for many other organisations, either in the public or private sector. Why couldn't he run the NHS, as it was rumoured Tony Blair asked Terry Leahy to do? That's an intriguing thought, with the minefields of market forces currently being reintroduced, but meeting stiff opposition from all and sundry. A never knowingly undersold health service, according to an efficient but caring capitalist model. We shall see.
FOUR CHALLENGES FOR MAYFIELD
- To see his organisation safely through the UK's retail downturn
- To capitalise to the max on the John Lewis ownership model
- To keep the Waitrose and John Lewis clans from coming to blows
- To expand the JLP brands carefully, both online and abroad
MAYFIELD IN A MINUTE
1966: Born on Christmas Day, attends Radley College public school. Then goes to Sandhurst and joins the Scots Guards
1988: Achieves rank of captain, having served in Northern Ireland, but then leaves to pay his own way through a Cranfield MBA
1992: Joins SmithKline Beecham and becomes marketing manager for Lucozade
1996: Joins McKinsey as consultant
2000: Joins John Lewis Partnership as head of business development. Ocado is his baby
2005: Appointed managing director of John Lewis stores
March 2007: Made chairman of the John Lewis Partnership