Mar 30, 2017
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John Lewis eyes "flight to quality" in UK consumer downturn

Mar 30, 2017

John Lewis, Britain's largest department store operator, is hopeful any downturn in consumer spending will see history repeat itself with a "flight to quality" rather than consumers opting to trade down, its new boss said on Thursday.

Managing Director Paula Nickolds said that in Britain's last recession at the time of the financial crisis in 2008 its shoppers did not necessarily trade down to cheaper alternatives but sought fewer, better quality products, helping the retailer gain market share.

John Lewis, as with all British retailers, is having to deal with rising costs due to the pound's depreciation in the wake of last year's vote to leave the European Union, intense competition and the continuing shift of trade from shops to online.

There have also been some signs recently that shoppers are now feeling the impact of rising inflation eroding earnings growth.

"What we saw in 2008 was quite an interesting shift for our customers - it was more a flight to quality than it was a trading down," Nickolds told reporters on Thursday, noting the firm had won market share every year since 2008.

"It remains to be seen what will happen this time round but my suspicion is people will be much more thoughtful about buying once and buying well and retailers will have to work harder to entice people to spend," she said.

"In many respects ... that’s a good thing. It forces retailers to really up their game."

Nickolds, a 23-year John Lewis veteran and the first woman to run the 152-year old, employee-owned, chain, succeeded Andy Street as managing director in January.

Street, MD for a decade, quit the post to contest the election of the mayor of the West Midlands, a region of central England, for the ruling Conservative Party.

For the eight weeks to March 25 John Lewis' sales were up 0.6 percent, which analysts estimate equates to a like-for-like sales fall of 1.5 percent, partly reflecting the earlier fall of Mothers Day and Easter this year compared to last year.

"I don't think it will be until the early and middle of May before we're really able to tell what's happening at an underlying level," said Nickolds.

She said higher input costs should not be taken to mean automatically higher prices for shoppers, due to the competitive nature of the market.

She also noted that John Lewis' 'Never Knowingly Undersold' price-matching pledge meant it would be "the last to move on pricing."

Detailing her plans for the chain she set a target of 50 percent of what John Lewis sells being exclusive to the retailer or own brand, up from "high 30s" currently.

By 2020 the retailer expects half of its sales to be made online.

Nickolds also warned there would be more job losses at John Lewis but declined to provide any numbers.


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