John Lewis considers historic change to staff ownership structure

Retailer John Lewis is considering the sale of a stake in its business after 73 years operating as a staff-owned partnership, in a bid to fund the investment needed to reverse its declining fortunes.

A source familiar with the group’s strategy confirmed that the option of a sale of a minority stake in the prestigious high-street brand was now on the table, to inject new capital into its department stores and Waitrose supermarkets, which have together recorded annual losses in each of the past two years.

“We’ve always said we would seek partnerships to help fund our transformation and exciting growth plans,” John Lewis said in a statement, highlighting its deals with Ocado and Abrdn, which did not involve sales of equity in its business.

The Sunday Times first reported that the company was looking to sell a stake worth between £1bn and £2bn in order to invest in its struggling Waitrose stores as well as build its IT infrastructure.

“The business expanded rapidly between 2000 and 2015, going from 151 to 379 stores”, explained chair Dame Sharon White in a letter to partners in January. “We now have catch-up investment to make, and have the potential to modernise the business at greater pace.”

In response to the news of a possible stake sale, one former director of John Lewis told the FT: “They’re not seeking equity to grow the business; this is a recapitalisation — they’ve basically run out of money and need cash.”

The ex-director added that the business had received, and declined, approaches from private equity in the early 2000s, as well as an approach from Amazon to buy Waitrose in 2017.

“I do think that Sharon inherited a business in much worse shape than expected”, the person said. “This is demutualisation by another name. If they didn’t have to do this, they wouldn’t.”

Any structural changes to John Lewis would require approval from the chair, board and the partnership council — a representative body with elected members from the John Lewis workforce.

But a source familiar with John Lewis’s strategy denied that any sale would be a “demutualisation” — whereby a worker-owned company restructures into a public company with shareholders — and said making investments into the business was the “best way to protect the future of the partnership.”

Industry insiders suggested the only investors likely to take a stake in the struggling retailer were “long-term investors”, such as sovereign wealth funds.

“The Qataris [Qatari Investment Authority] bought a stake in Sainsbury’s; I wouldn’t be surprised if it’s those sorts of people that are interested”, said the former John Lewis director.

The retailer has struggled in recent years to grow its sales and keep its cost base down, with White saying “inflation has hit us like a hurricane” on a call with media last week.

That was after the partnership reported a pre-tax loss, including property writedowns, of £234mn in the year to January 28 — widening a £27mn loss from the previous year.

Sales fell 2 per cent to £12bn with those at supermarket Waitrose, which accounted for £7bn of the total, down 3 per cent. The partnership bonus for staff was scrapped for only the second time since 1953.

Response to the mooted changes by John Lewis from retail analysts and veterans was mixed.

Neil Saunders, retail analyst at GlobalData Retail, called the plan to sell a stake in the business “half-baked” and “risky”. “It will cause internal division and hurt partner morale at a time when it is already very low,” he said.

“It also opens up the partnership to a degree of outside control which, aside from being against the founding principles, is likely to drive poor short-term decisions and could potentially lead to conflicts,” he added.

Retailing consultant Nick Bubb, however, said: “there is a basic problem which is that the business is making no money and, unless it does that, it can’t provide a bonus and can’t raise money to invest money in stores. Waitrose is beginning to look a bit shabby compared to M&S. Something clearly needs to change.”