John Lewis axed the bonus for its partners for the first time in more than 70 years as it plunged to a £635m loss in the first half.
Sharon White, chairman of the employee-owned retail group, said bonuses would only resume once annual profits rose above £150m and net debt fell back below four times underlying profit.
“I know this will come as a blow to partners who have worked so hard this year,” she said.
John Lewis has been hit by weakening consumer sentiment and intense competition, particularly in its department store business. Profits there more than halved last year, even before any impact from Covid-19.
Its supermarket chain Waitrose had seen “a strong pick-up in demand” since its supply agreement with Ocado ended on September 1, with orders on waitrose.com up 9 per cent in the first week.
The first-half loss was mainly driven by exceptional items, including a £470m impairment charge against the value of its department store estate and the cost of store closures.
Excluding the one-off items, the partnership made a loss of £55m, similar to the £52.9m loss made in the same period a year ago and ahead of the company’s expectations at the time of its last trading statement in April.
For the full year, John Lewis said the “most likely” outcome was a “small loss or small profit”, a slightly better result than predicted in April.
Overall first-half sales were 1 per cent higher but focused in less profitable product areas, while government support schemes helped offset the impact of £50m spent adapting the business to the Covid-19 pandemic.
At the eponymous department stores, sales were down 10 per cent, with a decline in store sales mitigated by a 73 per cent surge in online revenue. This now makes up three-fifths of the total.
The group has reassessed the role of John Lewis stores in online spending. “Before the crisis we believed that shops contributed around £6 of every £10 spent online. We now think that figure is, on average, around £3,” it said.
“Trading operating profit” at the department stores was £153m, against £285m last year. At Waitrose, same-store sales were up almost 10 per cent and the chain made an operating profit of £586m — up from £530m a year ago.
Dame Sharon said that the strategic review she launched earlier this year would report in full in October. However, the direction of travel is already clear; the group opted not to reopen eight John Lewis stores after lockdown, and said on Wednesday that it would close or sell four more Waitrose stores.
The famed “Never Knowingly Undersold” promise, which dates back to the 1920s, is set to be dropped in favour of a broader commitment to value.
There will be an expansion of its financial services and ventures in other new areas, potentially including social housing. The partnership has already launched a furniture rental business with Fat Llama.
John Lewis has also reformed an expensive pension scheme, cut costs hard and reduced partner bonuses from 10 per cent of salary in 2016 to just 2 per cent last year.