Dec 31, 2017

John Lewis legacy ensures everyone is being served

Few companies enjoy more goodwill from the British middle class than John Lewis. Its remarkable prestige owes much to its partnership status, an unusual structure created in 1949 by the then owner, who essentially gifted his business to its staff. This generous act, rarely repeated, probably ensured the future prosperity of his life’s work and hence an enduring legacy.

The organisation says its founder was John Spedan Lewis. This is not the entire picture. He inherited the business from his father, a towering entrepreneur also called John, who started the retail empire in 1864 by opening a shop on London’s Oxford Street.

The first John Lewis lived to be 92 and never retired. His son wrote a 500-page book in the 1940s called Partnership for All, sadly long out of print. In it John Spedan Lewis describes his father as a “superman”, yet also states that “the governing impulse of his long, hard-working and in many ways self-denying life was fear . . . the poverty of his early years had made such an impression that the real governing impulse of his whole life was to achieve for himself in that respect the greatest possible margin of safety”.

John Spedan Lewis went to Westminster School and a photograph of him at 21 suggests a rather aristocratic individual. As a young man, he was given a quarter share of the business, which by then included the Peter Jones store in Chelsea. He took charge after his father died in 1928.

In 1940, the group bought 15 department stores across the country, which suddenly made it a national chain. Since then, it has only expanded to 48 department stores.

In 1937, the partnership bought the fledgling Waitrose supermarket operation. This has since grown from 10 shops to more than 350. The group now has revenue of £10bn a year — modest compared with Tesco’s £56bn, yet impressive nevertheless.

In a way, one can see the history of the John Lewis Partnership in three distinct phases. For the first 30 years or so, mainly under the leadership of the true founder, a classic self-made man and straightforward capitalist, it was a family firm. He had the courage and grit to build the enterprise from nothing, but ran it inefficiently.

John Spedan Lewis enjoyed a more privileged upbringing and was clearly a visionary and reformer. He expanded the business significantly and, most radically, gave it away to the staff for all time. Over the past eight decades or so, with the founding family’s entrepreneurial presence gone, John Lewis has become institutional: solid, high quality, if perhaps lacking a touch of the dynamism that founder-owners can possess.

Despite its lack of entrepreneurial spirit over recent decades, it has been successful and innovative in extremely competitive markets. Its ability to invest for the long term, its commitment towards key suppliers and attractiveness as a place to work, thanks to its partnership bonus, mean it feels different from other retailers and retains extraordinary loyalty from customers.

Indeed, its core fans must do almost all their shopping at John Lewis and Waitrose: the top 10% of its customers generate more than half of all sales across the organisation.

John Lewis claims a noble purpose as a business: the happiness of its members — in other words, its staff. Indeed, as a shopper in their stores, one gets the impression that it is, by general standards, a nice place to work.

Service levels are usually much better than at rival establishments. Certainly, its staff benefit from the annual partnership bonus, although this was cut to 6% of salary in March, the lowest level since the 1950s.

Without a share price to worry about, or dividends, hostile takeovers or an exit for shareholders, the stewards of John Lewis can concentrate on keeping their patrons satisfied. The magic of retained profits, growing markets and a motivated workforce has created a retail brand like no other in the British imagination. Even though department stores as a category are struggling, the John Lewis business appears to remain largely unscathed by the turmoil on our high streets.

It is not surprising that there are very few companies like John Lewis. It could not have existed without a profoundly philanthropic proprietor — and an outright owner — as well as a man who was willing to sacrifice his inheritance to a dream of partnership.