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John Lewis warns it may not pay staff bonus

image copyrightGreg Funnell
image captionPaula Nickolds was John Lewis' first female managing director

Retail group John Lewis Partnership has warned its staff bonus may be in doubt as it reported a fall in festive sales at its department store chain.

It warned that annual partnership profits were expected to be "substantially down on last year".

The board will meet in February to decide if it is "prudent" to pay the staff bonus, the partnership said.

In a surprise announcement, John Lewis & Partners also said its managing director Paula Nickolds will step down.

The partnership has been combining the executive teams behind John Lewis and Waitrose into one team, and she was expected to become executive director of brand next month when the teams merged.

John Lewis said: "After some reflection on the responsibilities of her proposed new role, we have decided together that the implementation of the future partnership structure in February is the right time for her to move on."

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Ms Nickolds was the first woman to become managing director of the partnership, having worked her way up after joining as a graduate trainee in 1994.

She will leave the partnership next month.

'Perspectives change'

There will be another big change at the top of the partnership in February, when top former civil servant Sharon White will take over as chair.

Outgoing chairman Sir Charlie Mayfield said the decision for Ms Nickolds to step down was taken by both of them.

"Paula has been a brilliant leader of this business for many years," he said. "We decided together now is the time to step away."

Ms Nickolds had been a rising star in the business. When asked about what had changed between October and January, Sir Charlie said: "Things change. People's desires, people's perspectives change.

"My perspective is that what we've done and what we're doing is the right thing to do."

Bonus warning

The decision on whether or not to pay the traditional staff bonus, which will be taken by Ms White, will be "influenced by our level of profitability, planned investment and maintaining the strength of our balance sheet", the partnership said.

The John Lewis Partnership is owned by its staff, who are known as partners.

The last time that staff did not receive a bonus was in 1953.

However, whether or not it would be paid was in doubt last year.

In March 2019, the partnership cut the bonus after a plunge in profits.

John Lewis warned that this time around, full-year profits might not be enough for it to pay out any bonus.

The partnership fell to a loss in the first half of 2019, as it warned of "difficult" trading conditions and "subdued consumer confidence".

It said on Thursday that it would reverse those losses, but it warned that profits would still be "substantially down" on the previous year.

Sir Charlie said that profits had been hit "because we are price competitive, because we match prices".

John Lewis has a price comparison promise enshrined in its "never knowingly undersold" slogan, which commits it to matching the prices of High Street competitors, but not those of online-only competitors.

Trading conditions are tough at the moment, he said.

"Unfortunately, you can't choose the weather. When the weather is fine, you make hay - and we did.

"You have to use the winter to sow the seeds for the next harvest."

Festive sales

Christmas sales at John Lewis department stores were down 2% on a like-for-like basis, the partnership said.

Sales in its home and technology departments were weak, down 3.4% and 4% respectively in the seven weeks from 17 November to 4 January.

But it said beauty department sales were up 4.7% and Black Friday department store sales jumped 10%.

At the same time, Waitrose sales rose 0.4%, which Sir Charlie described as "a good sales performance" in a "weak grocery market".

Julie Palmer, a partner at Begbies Traynor, said the results were "a huge dent to John Lewis' recovery plans".

"A company that was once placed on a pedestal as the future of retail by government and analysts has had its legs taken from under it, leaving it stumbling battered and bruised into 2020," she said.

The "never knowingly undersold" promise "continues to erode margins as it seeks to compete on price with competitors that have leaner operations and lower overheads", she said.

"The rules of this promise may need to be reviewed and renewed if the retailer is to start turning around, and a savvy operator with Treasury experience like Sharon White may be just the kind of mind needed to do it," Ms Palmer added.

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