The Never Knowingly Undersold price guarantee has labelled a ‘straitjacket’ that has wiped out profits at John Lewis, experts said last night.
The department store revealed that half-year profits were likely to plunge to close to zero, while full-year earnings are expected to be ‘substantially lower’ than last year.
But yesterday experts warned the firm’s lauded price promise was at the root of the problem as the chain had been forced to slash prices to keep up with budget rivals.
Punished hard: The department store revealed that half-year profits were likely to plunge to close to zero
In response to the profits crisis the partnership announced a major overhaul, changing its branding, revealing a multi-million pound IT investment and vowing to sell more own-brand items.
John Lewis is now planning to make half the products it sells either own-brand or exclusive. Currently, 30 per cent of its sales come from these products.
Analysts said this would reduce the impact of the price pledge – as own-brand and exclusive deals cannot be compared to rivals.
Patrick O’Brien, UK retail research director at GlobalData, added: ‘John Lewis has been hamstrung to by its price guarantee because they’re offering a much better shopping environment but then having to price match promotions on branded products.
‘The move away from reliance on branded products is all about not competing head-on with price where they are going to have their margins eroded even further, so effectively what they’re doing is trying to circumnavigate the price promise.’
The latest profits crisis at John Lewis comes after they plummeted 77 per cent to £103.9m last year at the John Lewis Partnership and follows it shelling out tens of millions on restructuring.
John Lewis’s Never Knowingly Undersold price pledge was launched in 1925 and promises that if a customer finds a product cheaper elsewhere, it will reduce its price to match. This includes for online deals.
The policy has become tested as struggling rival department stores have been running major promotional events in a bid to lure in shoppers.
Independent retail analyst Nick Bubb said: ‘Never Knowingly Undersold is a powerful reassurance to consumers, but I wonder if John Lewis takes it too far by matching whatever silly deals House of Fraser and Debenhams do.’
ARE GIMMICKS TO BLAME FOR SALES FLOPS?
Both John Lewis and Waitrose have come up with a series of marketing gimmicks to woo more shoppers into stores. But some have been ridiculed – while others have been scrapped completely.
Theatre school training John Lewis sent its staff to drama school in a bid to boost confidence and impress customers
Champagne bars John Lewis opened a prosecco and champagne bar in its Oxford Street store in October. It has since closed
Concierge service Last year it introduced a concierge service designed to help shoppers plan their day at the department store
Healthy eating specialists Nutritionists are deployed at Waitrose stores to give advice to customers on how to pick foods with less fat or sugar and vegetarian alternatives
Social media training Staff have been asked to become ‘brand ambassadors’ and post pictures of themselves wearing the chain’s fashions
Free hot drinks Waitrose faced uproar when it stopped offering free tea and coffee. Customers must now buy something first
O’Brien added: ‘John Lewis has been hamstrung to by its price guarantee because they’re offering a much better shopping environment but then having to price match promotions on branded products.’
But experts added that scrapping the price pledge would be damaging for John Lewis and risk alienating loyal customers. O’Brien said: ‘The price guarantee is a bit of a straitjacket for John Lewis. They’ve had it for so long it would be hugely damaging to their brand if they lifted it.’
Independent retail analyst Richard Hyman said it had become tougher for John Lewis to price match products since the rise of internet giants like Amazon. He said: ‘It’s particularly a burden because when it was invented before the internet … Now you’ve got companies with a different kind of cost structure which can sell products at lower prices.’
A spokesman for John Lewis said: ‘At the heart of the strategy is developing a curated and targeted assortment, which is increasingly unique to John Lewis.’
AND GREEN LOGOS ARE SCRAPPED
John Lewis and Waitrose are ditching their famous green logos in favour of plain black and white variants.
The diagonal green stripes on its plastic bags – which are lighter for Waitrose and darker at John Lewis – were created in 1990 and are supposed to reflect the facade of its Leeds department store.
The group is also rebranding store names to John Lewis & Partners and Waitrose & Partners to reflect the fact the firm is run as a partnership, so staff share in profits.
A spokesman for the group said: ‘The new brand is a really clear statement about the core of our business – our partners at the heart of everything we do.’