Retailer John Lewis is considering selling a stake in the business after 73 years operating as a staff-owned partnership, to fund the investment needed to turn around its declining fortunes.
A source familiar with the group’s strategy confirmed that the option of selling a minority stake in the iconic high-street brand is now on the table, to inject fresh capital into its department stores and Waitrose supermarkets, which have both posted annual losses. Each of the last two years.
“We have always said we will seek partnerships to fund our transformation and exciting growth plans,” John Lewis said in a statement, highlighting its deals with Ocado and Aberdeen, which do not include the sale of equity in its business.
The Sunday Times first reported that the company was looking to sell a stake of between £1bn and £2bn to invest in its struggling Waitrose stores as well as build its IT infrastructure.
“The business expanded rapidly from 151 to 379 stores between 2000 and 2015,” chair Dame Sharon White explained in a letter to partners in January. “We now have the catch-up investment to make, and the ability to modernize the business at a faster pace.”
In response to news of a potential stake sale, a former John Lewis director told the FT: “They are not looking for equity to grow the business; This is a recapitalization – they’ve basically run out of money and need cash.”
The former director added that the business had received and rejected approaches from private equity in the early 2000s, as well as an approach from Amazon to buy Waitrose in 2017.
“I think Sharon inherited a business in worse shape than expected,” the person said. “This is demutualization by another name. If they didn’t have to do this, they wouldn’t.
Any structural changes at John Lewis will require the approval of the Chair, the Board and the Partnership Council – a representative body with members elected from the John Lewis workforce.
But a source familiar with John Lewis’ strategy denied that any sale would be a “demutualization” — in which an employee-owned company restructures into a public company with shareholders — and said investing in the business is “the best way to secure the future of the partnership.”
Industry insiders suggested that only investors who are “long-term investors”, such as sovereign wealth funds, are likely to take a stake in the struggling retailer.
“The Qataris [Qatari Investment Authority] bought a stake in Sainsbury’s; I wouldn’t be surprised if those are the people who 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 on a call with media last week that “inflation has hit us like a hurricane.”
That was after the partnership reported a pre-tax loss including property writedowns of £234m in the year to January 28 – widening a £27m loss from the previous year.
Sales at supermarket Waitrose fell 2 per cent to £12bn, on a total of £7bn, down 3 per cent. Participation bonuses for staff were abolished for only the second time since 1953.
Reaction to John Lewis’ changes 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 damage the partner’s 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, in addition to being contrary to founding principles, can lead to poor short-term decisions and potentially lead to conflicts,” he added.
However, retailing consultant Nick Babb said: “There is a fundamental problem which is that the business is not making money and, until it does, it cannot pay bonuses and raise money to invest in stores. . Waitrose is starting to look a bit shabby compared to M&S. Something clearly needs to change. “