John Lewis blames profit drops on high IT costs

John Lewis has claimed high technology costs and the increasing price of opening new stores are the reasons for its dropping profits.

In the retailer’s interim half-year financial report, which also included Waitrose results, the firm showed a 99% drop in profits in the first six months of 2018, in comparison with the same period last year.

As well as pointing the finger at its attempts to maintain competitive pricing to stick to its Never Knowingly Undersold promise and a shift towards smaller electronics rather than “big ticket items”, the retailer blamed “the costs of new shops and higher IT costs” for the profit squeeze.

Charlie Mayfield, chairman of the John Lewis Partnership, said these costs were seen as an investment in the future growth of the business.

“These are challenging times in retail. Our profits before exceptionals are in line with what we said they would be at our Strategy Update in June,” he said.

Mayfield also mentioned the cost of investing in cyber security and data protection across the partnership contributing to the overall drop in profits.

The department store has been focused on restructuring its business to match the shifting retail landscape, and consistently blamed this, as well as a shift towards omni-channel retail, for drops in profit.

Waitrose, which saw a 23% increase in online grocery sales, joined John Lewis for the annual Jlab startup search for the first time in 2017, with the aim of finding small businesses which can solve some of the technology challenges faced by supermarkets in the digital age.  

The brand has also recently completed a reform of the John Lewis website platform to improve search capability, checkout and product availability checking.

But all of these investments are important ones for the brand – online makes up 39% of sales for John Lewis, and the introduction of live delivery tracking for its website led to 1.5m additional website visits.

The retail landscape is growing more competitive, with brands such as Marks and Spencer investing in data skills for its existing employees, and Argos launching a voice shopping capability to allow customers to shop through the Google Home Assistant.

For brands that have not been as fast with technology adoption or adapting to the changing customer landscape, there has been trouble, with names such as Toys ‘R’ Us, Maplin and British Home Stores disappearing from the high street.

“We’re continuing to improve our offer for customers while ensuring we have the financial strength to continue developing our business going forward,” said Mayfield. “This is reflected in both brands continuing to grow sales and customer numbers, and our total net debts reducing.”

John Lewis CIO Paul Coby, who has been with the retailer for almost seven years, announced he would step down from his position by the end of 2018, but has previously told Computer Weekly that looking at how retail has changed in the past will have no bearing on how retail may be in the future.