John Lewis – The Workings of the Partnership
This report contains analysis of the internal and external environment in the form of SW)T analysis, as well as an analysis of the strategic fit and recommendations that could be drawn as a result.
The purpose of this report is to look at the John Lewis partnership as a whole and using factors such as a SWAT analysis attempt to recognise what the business does well and where the threats may derive from. An analysis of Porters Strategic fit will also help to lead to both recommendations and conclusions upon what the business does well and on what it needs to do better or expand into in order to become more successful.
2 PESTEL Analysis and Porters Five Forces
Both the PESTEL Analysis and the summary of Porters Five Forces can be found in the Appendix.
3 SWOT Analysis
The first strength of John Lewis is that it is built upon its reputation for high quality goods backed up by an excellent customer service. Since the 1920’s the company has been renowned for its relaxed shopping atmosphere for the slightly higher demographic consumer. The business itself is a partnership meaning that everybody has an equal share of the company profits. Furthermore this means that there are no large shareholders making corporate decisions without some level of consultation, producing a more thought out course of action. Once an individual is employed under the John Lewis name they receive a voice in the running of the company, can suggest ideas for future development and take their partnership income at the end of each financial year.
This idea now expands onto John Lewis economical impact with John Lewis making numerous large charitable donations each month, funding projects from a local level right through to trying to solve poverty in Africa. Giving the consumer the perception of a business that John Lewis is an ethical business, this company image can be highly important to the business in the future. The business also goes out of its way to reduce its environmental impact, by using two level lorries in order to carry twice as much in a single journey. John Lewis has also started to make use of E-Business, which cuts down costs dramatically as there is no need for a department store as all products come from the warehouse, as well as reducing levels of staff therefore expansion into this area may prove an option in the future.
One potential weakness John Lewis now faces is due to its choice of cutting costs in its department stores and Introducing a “basics” line into its Waitrose arm of the business. Consumers remain loyal to John Lewis because of their “never knowingly undersold” policy, that being although their prices may be higher than competitors, they can provide the better quality service. By introducing budget lines however, this consumer Loyalty is being put to the test as John Lewis loose the one thing that sets them out from the rest of the market, product differentiation.
Furthermore, the other key weakness is also one of its strengths and that is the organisation structure of a partnership, because everybody is entitled to their say, decisions within the business are often slow and as such key gaps in the market may be missed due to lack of obvious leadership.
John Lewis is now in a position to ascertain its goods at a much cheaper price as suppliers are desperate to sell due to the credit crunch but only a limited number of companies wish to purchase. The company could use this to its advantage by purchasing the goods now, holding them in storage and then sell them at a higher price when the market picks up. Government legislation also opened up opportunities for John Lewis by offering a VAT break of 2.5%, hence consumers thought they were getting a better deal while John Lewis managed to maintain and increase their profits.
John Lewis also has large opportunities for expansion into other markets, for example personal finance. The John Lewis credit card is all ready proving popular with its customers, and offering a 19.9% return to the company in charges on those who don’t pay their bills at the end of the month. Just like companies such as Tesco and Asda though, the business could look at factors such as insurance for example, all of which could be sold under the John Lewis name be it a branch of the company (such as Waitrose) or even sold in store as an add on to certain products (for example customers buying new televisions may be interested in home content cover.)
Furthermore, John Lewis could expand further with its budget food items particularly within its Ocardo and Waitrose stores. However this goes against every value that makes John Lewis what it is today and as such consumers may not be so fond of the move however the basic range brought out in Waitrose called their “essential range” have sold over £100 million of products since there release indicating a changing market for John Lewis showing a very lucrative opportunity for John Lewis.
John Lewis online could also be a potential move, as mentioned having an online store would cost considerably less while at the same time giving the consumer the chance to shop from anywhere at anytime they wish. Furthermore discounts could be offered as there are many less overheads involved in the running of the store.
The biggest threat to John Lewis comes from within the business itself, its own structure. That being a partnership structure, hence everybody is a share holder. Therefore in theory if enough shareholders got together to oppose the managing body of the company and the business is left without any clear leader. It also leaves the company open to possible a takeover bid as if enough of the shareholders agree to sell their shares, then the company’s current controlling shareholder will lose their power and become minority shareholders. Numerous competitors also play a key threat in the running of John Lewis, as many offer exactly the same products and services. Therefore the only value added John Lewis can add is their customer service, however this is something that can easily be replicated and as such many competitors may start offering a John Lewis service but at a more competitive price.
The economy as a whole also presents a threat, to all companies in general but more so to John Lewis as their higher quality goods carry a higher price tag meaning a lower price indicates lower profits.
Varying exchange rates can also provide threats to John Lewis as prices for the goods imported can vary dramatically depending upon when they were bought. Obviously the in store price can’t vary at this rate however and as such profit margins may be larger at some times than others, in theory it could be possible that some products even end up being sold at a loss due to poor exchange rates. (A yearly average breakdown of the pound to euro exchange rate can be found in the appendix.)
4. Competitive Strategy
In the past, John Lewis had been said to be more Differentiation focused, by providing high quality goods based more to those people with a higher income, and as such creating more of a narrow market. The result of this though isn’t necessarily bigger profit margins as the products cost more to purchase in the first place. As a result of people generally becoming wealthier however, John Lewis prices have been deemed to be more acceptable and as such the market opens up creating a Differentiation strategy. This is where its high quality goods and services come into place to set the company apart from its competitors.
However by expanding into areas such as supermarkets through Waitrose and Ocardo, and the introduction of budget lines into the stores, John Lewis had started looking more at its cost focus, that being attempting to sell lower costing goods while still trying to retain some level of exclusivity. To some degree this has worked with the introduction of a lower cost range into the Waitrose stores. The Introduction of this new budgeted range goes against John Lewis’ past competitive strategy by focusing on the lower price aspect of marketing however John Lewis has realised that their past strategies no longer fit the shrinking market for high quality products “However, our research suggest many of our shoppers do not think they can do a full weekly shop at Waitrose on a tight budget. The essential range will help them do so, while watching their pennies.” (Richard Hodgson, Commercial Director).The release of the new budgeted line has been highly successful selling £100 million worth of products in just its first three months. This new competitive strategy may become an important point to the future success of John Lewis.
On the other hand however, there are serious issues surrounding trying to be a leader in each of these differentiated segments and that is that you get stuck in the middle, not being able to sell either particularly cheap nor expensive goods and not being able to define a particular market in which to sell them to. As a result this may lead to a severe loss of sales hence there is no particular market segment on which to take control of.
5. Strategic Fit
John Lewis as a partnership has a good level of strategic fit simply because of the vast amounts of business opportunities it employs. For example taking the Waitrose arm of the company, strategically thinking the business could make a sideways move (there is a proper name for this, where the sideways move is taking over the supplier etc) and start taking over their suppliers or even there producers. By doing so this may reduce costs to the company which in turn may lead to higher profit margins. On the other hand however John Lewis may try to launch themselves into a new potential market such as that of personal finance. The company attracts those with a higher income so it makes sense to try and offer them more value added products with what they buy, such as product insurance for example. This is more prevalent now John Lewis has started selling laptops and desktop computers as they can then offer a whole range of extras from carry cases to software right through to insurance. Again though after offering this the company may choose to take a sideways move and take over the suppliers of these goods or even start to produce versions of there own. Depending on what the partnership decides to do however can have serious effects upon, for example if the decision is made to move both sideways and forwards ( Find the correct term for this as it sounds crap) then it may cost an awful lot of money, yet the partnership hasn’t actually strategically fit anywhere as it is trying to do everything at once. Further more, depending on where the movement happens and into what sector could have serious lasting damaging upon the one key intangible asset of the business…its brand name.
As a direct result of this report, it can be seen that there is definite room for expansion from John Lewis. Our recommendation is to look into the personal finance market. With the current economic climate, a new face on the market may be exactly what the customer is after. It could be argued that there is some level of saturation but consumers are always looking for the best deal and a company that installs pride and trust. John Lewis can do this by using its brand name as a sign of quality. As a business it has all ready introduced the John Lewis credit card which works both as a store card but can also be used for other purchases in other outlets. Building upon this we believe it may be wise to look at car insurance for example but maintain the John Lewis foundations so this could be done for example by insuring older drivers in possibly more expensive cars. The same may go with house insurance with the company specialising in larger homes with higher levels of contents cover. Whatever the company decides to do though it needs to make sure it specialises in what it does in order to differentiate itself from its competitors.
7.1 Porters Five Forces
Capon, C (2009). Understanding The Business Environment. 3rd ed. London: Financial Times / Prentice Hall. p83-89.
Financial Times. (2010). Market Data. Available: http://markets.ft.com/ft/markets/researchArchive.asp?report=ESP&cat=CU. Last accessed 08 Mar 2010.
Wallop, H. (2009). Waitrose Brings Out Budget Range Of Food For Recession-Hit Middle Classes . Available: http://www.telegraph.co.uk/news/4948886/Waitrose-brings-out-budget-range-of-food-for-recession-hit-middle-classes.html. Last accessed 09 Mar 2010.
Wallop, H. (2009). Waitrose Budget Range Flies Off Shelves As Middle-Classes Cut Costs . Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/5602201/Waitrose-budget-range-flies-off-shelves-as-middle-classes-cut-costs.html. Last accessed 09 Mar 2009.
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