John Lewis Partnership Plc Business Information, Profile, and History

Company Perspectives:

The Partnership's ultimate purpose is the happiness of all its members, through their worthwhile and satisfying employment in a successful business. Because the Partnership is owned in trust for its members, they share the responsibilities of ownership as well as its rewards—profit, knowledge and power.

History of John Lewis Partnership Plc

John Lewis Partnership plc is unique among large companies in Britain in that it is run for the benefit of its employees, as the majority of its profits are shared among them. Because of the independence this affords, it is perhaps less hungry for publicity than most companies of its size, and outsiders are often surprised to realize how large and successful it is. The company has two main arms, of almost equal size in turnover. The original business was department stores, of which it has 26, a little more than half named John Lewis and the rest under a variety of local monikers (most of which were, at the beginning of the 21st century, in the process of being converted to the John Lewis name). The other arm is supermarkets, of which it has 136, all trading as Waitrose. That these 162 outlets can generate total sales of more than £4 billion ($6 billion) is an indication of the size and efficiency of each unit. The group also includes some factories, which supply the stores with textiles and furniture. John Lewis is also involved in mail-order and e-commerce businesses. It has no overseas operations, and within the United Kingdom its business is mainly concentrated in the south of England.

The business is essentially the creation of two men, John Lewis and his son John Spedan Lewis. The former created the first store and laid down its trading policy; the latter expanded it into a group of stores and gave the company its unique constitution. Since then the business has continued to thrive under non-family management, but a grandson of the first John Lewis, Peter Lewis, served as chairman from 1972 to 1993, and the ideas of John Spedan Lewis still permeate the whole enterprise.

19th-Century Origins: The Development of the First John Lewis Department Store

The company's first small shop opened in 1864, on part of the site that its main store occupied more than a century later in Oxford Street, London. This street was already well known for its shops, especially those supplying dresses and dress fabrics to the more prosperous classes. Other shops of this kind which were to become very successful included the already well-established Debenham and Freebody (later Debenhams) and Marshall & Snelgrove.

John Lewis was 28 years old when he opened his first shop. He had come to London from Somerset eight years earlier, having served an apprenticeship in the drapery trade. In London he took a job with another Oxford Street drapery shop, Peter Robinson, and became its silk buyer.

The early days were hard and dreary, as John Lewis told his son, but the shop gradually became a success. At first his store specialized in dress fabrics, sewing threads, ribbons, and other trimmings, but then diversified into ready-made clothes, hats, and shoes. He did not advertise, but had a policy of displaying prices clearly, which was not common at that time. He offered a wide assortment, fair dealing, and retained low margins.

By 1875 Lewis was doing well enough to need more space, and he began to take over neighboring properties. With the extra space, he was able to stock more merchandise. From clothing, the store's range broadened to include furniture, carpets, china, and most household goods. During the 1870s Lewis's turnover almost tripled, and it continued growing throughout the 1880s.

By 1895 he was able to rebuild the whole store, which by then had a large corner site with fronts on Oxford Street and Holles Street. The new building occupied six floors, with impressive facades in Renaissance style, and the staff by this time numbered about 150.

In slightly more than 30 years Lewis had created a major department store in one of London's best shopping streets. Even more remarkably, he had done so entirely out of retained profits. In the early years he lived frugally and saved enough of the profits to finance each new step without the need to bring in partners or to turn the business into a joint stock company. The whole store belonged to him alone, and he ran it in a totally autocratic way.

Not until he was 48 did Lewis marry and start to raise a family. His wife was a teacher, 18 years younger than himself, and one of the first women to go to university. She bore him two sons and had a strong influence on them. They received an excellent education and grew up with very different attitudes from those of their father. John Lewis had little education but had strongly individual views; he was an atheist and a liberal and once went to prison for defying a court order in a dispute with his landlord. He was considered a harsh employer, not prone to generosity. Both sons reacted against this hardness in different ways.

Lewis's sons both entered the business on leaving school and were given a quarter share in it upon reaching the age of 21. The younger son, Oswald, soon left the business to study law, provoking a long quarrel with his father, while Spedan became very interested in the business but increasingly critical of his father's methods.

The main issue of contention was staff wages. Spedan was shocked to find that the entire wage bill for 300 employees was a good deal less than the three partners were receiving in interest and profit. To him this was plainly unjust and probably bad for business too. He also discovered inefficiencies in the operation of the store; some departments were trading at a loss, and much of the upper floor space was being wasted. His father, however, angrily rejected all suggestions for change.

John Lewis was over 70 when his sons became partners, but was still full of vigor. Satisfied with the profits the rebuilt store was making, he turned his attention to other things, becoming a member of the London County Council and investing some of his growing fortune in buying a second department store.

Early 20th Century: Adding Peter Jones, Creating the Partnership

The opportunity to do this arose in 1905, when one of his business rivals, Peter Jones, died. Jones had founded another successful store in Sloane Square. Some two miles away from John Lewis's store, it served a different clientele. The business, started in 1877, had grown rapidly and was by this time a limited company. Lewis bought Jones's controlling shareholding and became chairman, but seems not to have taken a close interest in the management of the business.

It proved to be an unrewarding investment. Without the flair of its founder, the store quickly went downhill. Sales dropped by a third, and for six years the company paid no dividends. Eventually, in 1914, Lewis decided to see what his son could do with it. He transferred his shares in the store to Spedan and made him chairman on the condition that he continue working at the Oxford Street store until 5 p.m. each day. Spedan jumped at the chance to try out his ideas, even though it meant giving up most of his evenings to the job.

Following a riding accident a few years earlier, Spedan had spent much time either in hospital or at home, using this time to work out his ideas in detail. At Peter Jones he immediately began to implement them. Pay and working conditions were improved, and sales incentives were introduced. In addition committees were set up to encourage new ideas, management functions were redefined, and new managers were hired. John Lewis became alarmed and demanded his shares back, but Spedan refused to relinquish them. As punishment, his father canceled Spedan's share in the partnership, banished him from Oxford Street, and reinstated Oswald there.

This at least enabled Spedan to give all his time to Peter Jones, and business there improved rapidly under his management. By 1919 the company was making a handsome profit, and John Lewis paid a visit of inspection. He said little to his son, relations between them still being cool, but afterwards told his wife, "That place is a great credit to the boy—a very great credit."

Spedan took his reforms a stage further by introducing a profit-sharing scheme in 1920. Employees became known as partners and received weekly reports on sales and profits through a new house magazine, which also provided a forum for ideas and complaints. At the time, these practices were revolutionary and contrasted sharply with events at Oxford Street, where the employees went on strike for five weeks in 1920, earning the store much bad publicity. Over the next few years, however, there was a general slump in trade, which John Lewis withstood better than Peter Jones. This change in fortunes at last healed the rift between Spedan and his father, who advanced some much needed money to Peter Jones and restored Spedan's share in the Oxford Street business. Around this same time, in 1925 Spedan Lewis introduced the slogan "Never Knowingly Undersold" as the pricing policy for Peter Jones; this well-known motto was eventually adopted by the John Lewis Partnership.

By this time John Lewis was 88 and more or less content to let his sons manage the business. Oswald, however, did not agree with Spedan's radical views, and after two years Spedan persuaded him to give up his share in return for a cash settlement. Oswald was more interested in politics and soon afterwards became a Conservative member of Parliament. From 1926, therefore, Spedan was effectively in control of both businesses and could begin to reorganize the Oxford Street store on the principles established at Peter Jones. All these were swiftly applied except that the transfer of profits had to be delayed until after John Lewis's death, which occurred in 1928. Spedan was left sole owner of the Oxford Street store as well as majority shareholder in Peter Jones. He immediately converted the former into a public company, John Lewis and Company Ltd. To raise capital for expansion he offered preferred shares to the public, but kept all the ordinary shares in his hands. Then he transferred these and his shares in Peter Jones to another company, John Lewis Partnership Ltd., which was to hold them in trust for the employees. The transfer was not a gift, but was made on very generous terms and was irrevocable. Spedan retained control of the trust for an experimental period.

From then on all employees were considered partners in the business. Spedan worked out an elaborate constitution for the partnership to ensure that all partners were represented in the decision-making process, while at the same time giving the board full powers to manage the business on their behalf. It was a unique structure for a business, devised by a very practical idealist. Having laid these foundations, Spedan and his colleagues turned their energies to building up the business. They proved to be a very able team. In the 1920s Spedan had begun to recruit men and women from the universities, the best of whom were given quick promotions to important jobs.

The capital raised by the public offer of 1928—and another in 1935—was used to enlarge and modernize the stores. John Lewis acquired two new buildings in seven years, one on the other side of Holles Street, followed by another part of the island site, which the John Lewis store now fills. At the same time Peter Jones was completely rebuilt in stages so that trading could continue. The new building was ultramodern in style, the first in Britain to make full use of curtain walling of steel and glass.

1930s and 1940s: Expanding into the Provinces, Acquiring Waitrose

The company next began to broaden its base by acquiring some provincial stores: two in 1933 and two more the following year. All were in a rundown state, but were gradually made profitable. With six stores in the group there was opportunity for more centralized buying, and a single warehouse was set up in London to service them all.

Most significantly for the future, although the move was not seen that way at the time, the company entered the food trade by buying a chain of ten grocery shops. The business traded as Waitrose, because its first partners were called Waite and Rose, and grew from a single shop in Acton in 1904 to ten in various parts of London by 1937. Like Sainsbury's, Waitrose was at the quality end of the grocery trade and was a well-run business, albeit a small one. As a result of this expansion, the turnover of the John Lewis Partnership grew from £1.25 million in 1928 to £3 million in 1939, and by then the company had some 6,000 partners. In 1940 the business again doubled in size by acquiring 15 more department stores and 4,000 more staff at one stroke.

Encouraged by its success in reviving the four provincial stores it already had, the John Lewis Partnership seized an opportunity to buy all the provincial stores in the Selfridge group. They had never been successful under Selfridge's ownership and were still losing money. Consequently, the John Lewis Partnership was able to buy control of these 15 stores, which had a combined turnover of £3.3 million, for a mere £30,000.

The stores had never traded under Selfridge's name, but had kept their various founders' names and continued to do so when they joined the John Lewis Partnership. Examples were Cole Brothers of Sheffield, Trewin Brothers of Watford, and Caleys of Windsor, all still members of the group.

Their purchase, and the extensions to the Oxford Street store, were to prove a lifesaver over the next few years. By this time Britain was at war, and later in 1940 the main John Lewis building was almost completely destroyed by fire bombs. Four of the John Lewis Partnership's other stores were also destroyed. Had the business not been as widely scattered as it was, this would have been a calamity; as it was, it was just a bad setback. The loss of selling space was matched by shortages of staff and merchandise, which continued for some years after World War II. These shortages, and tight controls on building supplies, delayed further expansion of the John Lewis Partnership until the 1950s.

1950s Through 1970s: Rapid Expansion of Waitrose

Spedan was by then approaching retirement age, and management had largely passed into the hands of the people he had brought into the business. Unlike his father, who never formally retired, Spedan decided to do so at the age of 70, which he reached in 1955. Before retiring he signed over the last of his rights in the business to a corporate trustee. He also wrote two books about the John Lewis Partnership in the hope that its principles would be copied in other businesses. In fact, this did not happen. By 1955 the John Lewis Partnership had acquired the whole of its island site in Oxford Street and began to rebuild its store there. The work had to be done in stages and was not finished until 1960. The new building, still in use, gave the group a bigger selling area in central London than it had ever had before. The other war-damaged stores were also rebuilt at this time, and several more stores were acquired.

The biggest development in the business in the 1950s and 1960s, however, was the rapid expansion of the Waitrose chain. It had more shops than in 1937, but they were all small shops operated on the prewar pattern. In the United States self-service had largely superseded counter service in the 1940s, but retailers in Britain had been unable to experiment with this because of food rationing.

When rationing ended in the early 1950s, Waitrose was among the first British chains to try out self-service. It was also among the first to realize that self-service called for much larger shops. By 1959 it had built seven new-style supermarkets and owned 20 smaller shops. In the 1960s all the smaller shops were replaced by supermarkets. The total reached 50 in 1974 and 70 five years later. The John Lewis Partnership was quicker to embrace the new concept than many traditional food retailers and was rewarded with an increasing share of the retail food trade.

Waitrose became a far more important constituent of the John Lewis Partnership than it had been previously. Its contribution to group turnover jumped from under 15 percent in the early 1960s to over 40 percent by 1979. It developed its own trading style and own label products as well as its own distribution network and management hierarchy within the group.

Continued Expansion into the 21st Century

Department stores, however, remained by far the more profitable part of the business, and investment in these continued. In the 1970s three new stores were started under the John Lewis name (in Edinburgh, Milton Keynes, and Brent Cross, London), and during the 1980s another seven were built or acquired from other owners. These new stores were much bigger than was the norm outside London. Some of the older stores were closed and others rebuilt or enlarged. As a result, the combined turnover of department stores rose almost as fast in the 1980s as that of the Waitrose food shops. Meanwhile, in 1988, the company expanded its manufacturing operations through the purchase of J.H. Birtwistle and Company, a textile supplier based in Lancashire. This brought to three the number of textile suppliers owned by John Lewis Partnership, the company having decades earlier acquired two leading makers of household textiles, Herbert Parkinson, also based in Lancashire, and Stead McAlpin and Company, based in Cumbria.

By the end of the 1980s, almost 40,000 people shared the fruits of this business. Profits reached a peak in 1988 and 1989 of £131 million before taxes, of which £47 million was distributed among the employees.

During the recessionary period of the early 1990s, profits and the profit-sharing payout fell, totaling, for example, £93.2 million and £34.5 million, respectively, in 1993. By this time there were more than 100 Waitrose supermarkets and the partnership ran 22 department stores. The company expanded into the mail-order sector in 1993 with the purchase of Findlater Mackie Todd & Co., which sold wine through the mail and was the basis for Waitrose Wine Direct. Flowers Direct and Beer Direct were added later. Also in 1993 Stuart Hampson succeeded Peter Lewis to become the fourth chairman of the partnership. Hampson joined John Lewis in 1982, switching from a career as a high-ranking civil servant. During 1994, the first Waitrose food & home store opened in London's south end, marketing a full range of supermarket items along with a selection of household goods from John Lewis department stores.

Waitrose lost some ground during the early 1990s as its main rivals began opening on Sundays, in advance of a change in the law, and moved more rapidly to implement high-tech supply and distribution systems. It was not until 1995 that Waitrose began gaining additional revenues from opening its stores on Sundays and also completed the installation of electronic point-of-sale and ordering systems, which gave it better control over inventory and the ability to automatically reorder stock. The new initiatives had an almost immediate effect on sales, with Waitrose posting a 13 percent increase for the year ending in January 1996. This helped lift pretax profits to a record £150 million, an increase of 28 percent. The profit-sharing payout for that year amounted to £57 million, which translated into a bonus of 15 percent of salary.

From fiscal 1994 through fiscal 1998, the modernizing Waitrose chain saw its sales increase by 50 percent and its profits triple. Although continuing to rely on word-of-mouth advertising over the huge television ad expenditures of its larger rivals Tesco, Sainsbury's, and Safeway, Waitrose did step up its print advertising budget during 1998 in a campaign aimed at encouraging its customers to spend more money. By 1999 the number of Waitrose outlets had been increased to more than 130. The John Lewis department store operation was also continuing its slow but steady expansion, with two stores opened in 1999—in Bluewater, Kent, and in Glasgow—bringing the total to 25. Also during 1999, a number of John Lewis partners began pushing for a breakup of the partnership through the sale or stock market flotation of the firm, a move that might have garnered each partner as much as £100,000. Hampson, however, strongly opposed the dissolution of the partnership and also noted that, according to the legal documents put together by John Spedan Lewis, the John Lewis trust could not be dissolved without a full Act of Parliament. In any event, at a meeting of representatives of John Lewis and Waitrose stores held in September 1999, little support for an end to the partnership was voiced, bringing at least a temporary end to talk of a sale.

Pressure for a breakup had arisen at least in part from a dropoff in sales during the first half of fiscal 2000. The group had a stronger second half, but pretax profits for the full year did fall 21 percent from the record level of the previous year. Profit-sharing bonuses totaled £78 million, compared to £98 million for fiscal 1999. During 2000 the company acquired 11 shops from Somerfield plc, which were then converted to Waitrose outlets. That year also saw the partnership enter the burgeoning e-commerce sector with the launch of the John Lewis Now online shopping service and the purchase of a 40 percent interest in Last Mile Solutions, an Internet food retailer later renamed Ocado. This was accompanied by the launch of Waitrose online shopping services for both home and workplaces, as well as the 2001 acquisition of the U.K. arm of Buy.com, an online retailer of electronic goods and computers.

Meanwhile, the profits of John Lewis Partnership were continuing to decline in large measure because of heightened competition for the John Lewis department stores that was coming from discounters, who were forcing prices down. In late 2000 the company announced that it would begin a £300 million, three-year makeover of its 25-unit department store unit. In a perhaps belated modernizing of the operations, all of the stores not using the John Lewis name, with the exception of the flagship Peter Jones store (which was itself in the midst of an £80 million, three-year redesign), would begin doing so by the end of the restructuring/remodeling period. This would create a unified, nationwide chain under the John Lewis name.

While sales surpassed the £4 billion mark for the first time for the year ending in January 2001, pretax profits fell once again, dropping 23 percent to £149.6 million. Profits were affected by the tough retailing environment, which was being hit by price deflation, as well as by the increased investments being made to restructure the department store operations and for the Internet initiatives. The profit-sharing payout for the 53,000 partners amounted to £58.1 million, equivalent to a 10 percent bonus, compared to the 15 percent of the preceding year. It appeared likely that some of the partners might once again press for the dissolving of the partnership. Hampson, however, continued to emphasize that the increased investments that were being made would pay off more handsomely for the partners in the long run than would a one-time payout generated by the sale or flotation of the partnership.

Principal Subsidiaries: John Lewis Partnership Trust Ltd.; John Lewis plc; Bainbridge & Co. Ltd.; Bonds (Norwich) Ltd.; Cavendish Textiles Ltd.; Cole Brothers Ltd.; Herbert Parkinson Ltd.; J.H. Birtwistle and Company Ltd.; John Lewis Building Ltd.; John Lewis Construction Ltd.; John Lewis Overseas Ltd.; John Lewis Properties plc; John Lewis Transport Ltd.; Leckford Mushrooms Ltd.; Odney Estate Ltd.; Peter Jones Ltd.; Stead McAlpin and Company Ltd.; Suburban & Provincial Contracts Ltd.; Suburban & Provincial Stores Ltd.; The Leckford Estate Ltd.; Waitrose Ltd.

Principal Competitors: Marks & Spencer p.l.c.; Tesco PLC; J Sainsbury plc; ASDA Group Limited; Arcadia Group plc; NEXT plc; Safeway plc; Debenhams plc; Mothercare plc; House of Fraser PLC; Somerfield plc; Wm. Morrison Supermarkets PLC.

Chronology

• Key Dates:
• 1864: John Lewis opens a draper's shop in Oxford Street, London, and eventually develops it into a full-scale department store.
• 1905: Peter Jones department store in London is acquired.
• 1914: John Spedan Lewis, son of the founder, assumes control of Peter Jones and begins making radical changes.
• 1920: Spedan Lewis introduces a profit-sharing scheme at Peter Jones.
• 1925: Spedan Lewis introduces the slogan "Never Knowingly Undersold" as the pricing policy for Peter Jones.
• 1928: John Lewis dies; Spedan Lewis assumes full control of the Oxford Street store and of Peter Jones.
• 1929: Lewis transfers ownership of the company to a new firm called John Lewis Partnership Ltd., which holds the shares in trust for all employees, who in turn become full partners in the business and begin sharing in the profits.
• 1933: Company acquires its first provincial stores.
• 1937: Expansion into the food trade occurs with the acquisition of the Waitrose chain of ten grocery shops.
• 1940: Company pays the Selfridge group £30,000 for 15 provincial department stores operating under various local names, which are retained.
• 1950s:Waitrose introduces self-service to its shops and begins converting the shops to the supermarket format.
• 1992: The 100th Waitrose supermarket opens.
• 1994: First Waitrose food & home store opens in London, marketing a full range of supermarket items along with a selection of household goods from John Lewis department stores.
• 2000: £300 million, three-year makeover of the department store unit is launched, with local brands being abandoned in favor of creating a nationwide John Lewis chain.
• 2001: The U.K. arm of Buy.com, an online retailer of electronic goods and computers, is acquired.