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Osborne joins John Lewis at five-year high

Sales may be up at the middle class’s favourite store, but its new finance director still faces challenges

07 Jul 2011

By Gavin Hinks

Rachel Osborne is FD at John Lewis

ZARA PHILLIPS has her wedding list there and the store defied the bad weather at Christmas to register bumper sales. Describing itself as “never knowingly undersold”, John Lewis recently broke with high-street convention to announce a never-ending returns policy.

And now the middle class’s favourite department store has a new finance director in Rachel Osborne, who joins after just two years with services group Sodexo, which followed a spell of little more than a year with Kingfisher B&Q.

Osborne arrives at John Lewis at a bright time for the retailer. The last annual report published in April revealed that like-for-like sales were up 10% (gross sales up 11.9% to £3.32bn) and that online the store is storming ahead with 37.9% growth to £538m. With operating profit standing at £201.2m, that makes for a margin of 6.5%. The stores have contributed heavily to growing group sales for John Lewis Partnership to £8.21bn.

The department stores now sell £808 per square foot of floor space, higher than it has been in five years. Sales per full-time employee are also at a five-year high. These are also bumper times for the store’s partners – the employees that own the business – with bonuses reaching 18% of salary, or around £194.5m in total.

Investment in the business went on apace too. Three new home stores, plus a full-range store at Stratford and the rollout of the new women’s wear concept to nine stores saw John Lewis invest £120m.

The challenges for Osborne will be big. The department store has a two-pronged strategy of expanding its home furnishing stores and expanding online, especially abroad with the US and Australia. The national press has revealed a target of £1bn in turnover by 2014, and John Lewis started delivering to Ireland and France in June.

A key concern for Osborne will be the dearth of opportunities to expand the full-range stores because of the scarcity of suitable sites. Stratford is considered by analysts to be a rare exception and, therefore, gives the online business particular importance when it comes to investment.

There is also some concern in the annual report with retail prospects. Trading conditions are expected to be harder this year with chairman Charlie Mayfield highlighting the rise in VAT, unemployment and public sector spending cuts as likely to undermine sales.

That said, Mayfield expects investment this year in the partnership to be £600m, creating about 4,500 new jobs with more new stores.

And then there is the rather interesting transparency model that John Lewis runs. Each week the sales go up on the company’s website for all to see. The press love to report it, analysts use it as a bellweather for the high street, and there is no doubt that the ‘partners’ will talk about it. Most of all, it exposes the management’s business strategy to scrutiny week in, week out.

That is just one cultural change for Osborne to contend with. The other major one is moving out of the plc arena into an organisation owned by its employees instead of shareholders. Osborne comes to John Lewis after a spell with Sodexo and, before that, time with Kingfisher B&Q.

Close observers believe Osborne was so keen to get back into retail she was willing to leave the world of public companies – a move some observers believe could be detrimental to her career. One search expert told Financial Director that it would depend on whether she made a success of John Lewis. “People love a winner,” she said.

There is another issue too. John Lewis hired an autonomous finance director. Yet the partnership committee, which oversees Waitrose and the department store business, has its own finance director, Marisa Cassoni. Osborne’s independence could well be tested.

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