John Lewis invests in supply chain despite profits drop

20 September 2016

The John Lewis Partnership (JLP) has said it will continue to invest in its supply chain despite a fall in profits.

Results for the first half of 2016 show profits before tax fell 14.7% to £82m, though revenue was up 2.2% to £4.7bn.

Chairman Sir Charlie Mayfield said the results reflected market conditions and said the group was taking steps to adapt for the future.

“These are not as a consequence of the EU referendum result, which has had little quantifiable impact on sales so far,” he said. “Instead there are far reaching changes taking place in society, in retail and in the workplace that have much greater implications.”

Waitrose sales grew by 2.2% while John Lewis sales rose by 4.5%. Mayfield said first half profits were always lower than in the second half, which typically accounts for at least two-thirds of annual profits.

JLP will be prioritising the distribution network and IT for investment.

“Both are critical to improving service and convenience,” said the company. “We expect the trading pressures to continue through this year and next... the uncertainty of leaving the EU will remain and the full impact of this change is yet to become clear.”

The results follow the opening of two national distribution centres at JLP’s Magna Park campus in Milton Keynes as part of its “omnichannel strategy”.

“The new distribution centres are part of John Lewis's anticipation of changing customer needs, which has seen the percentage of customer orders being delivered move from 4% to 47% in the last 10 years,” said the company. 

The £150m investment in Magna Park 2 and 3 is part of a five-year, £500m investment in online systems and distribution. This follows an £100m investment in the existing Magna Park site, where 500 new jobs are expected to be created, a figure that will double at peak times. 

Magna Park 3 houses a training centre covering the delivery and installation of products. It also hosts the national hub of the “two-man” delivery centre, used to fulfil orders of larger items such as sofas and white goods.

The Magna Park 2 campus can sort and carry 1.6m garments at any one time. It will be responsible for fulfilling deliveries of 225,000 different products. 

Thanks to advanced technology that can combine more items in one delivery, the company expects that 850,000 fewer parcels will be delivered annually and delivery vehicles will cover 190,000 fewer miles. 

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