RETAILING The new senior partner sets out his stall
Neil Collins finds Charlie Mayfield, the youthful chairman of John Lewis Partnership, to be a chip off the old block The trade could only gasp at the figures Charlie Mayfield revealed a fortnight ago. Next week, the new chairman of John Lewis Partnership hopes they'll be gasping again as he opens 17,000 square feet of food hall at John Lewis in Oxford Street. No, not quite a Waitrose, but something that he claims will be different, the result of 'co-operation between Waitrose and John Lewis'. If you thought that as sister companies they were on the same side, then you really don't know how big corporations work. And JLP, as it is inevitably called by its executives, is a big corporation nowadays, with 68,000 employees — oops, sorry, partners — 26 stores, 185 supermarkets and sales of £6.4 billion a year.
Most people know that JLP is not as those other big, beastly retailers. It really is a partnership, owned by its employees, a business model which is vanishingly rare in Britain for enterprises of any size. It's on a roll at the moment, something which is apparent to any regular department-store shopper. Rather than suddenly find something important to attend to in the other direction as you approach, John Lewis staff look you in the eye and seem genuinely anxious to help. In Waitrose, the slightly smug feeling among the shoppers is palpable. Look, they seem to say, how passionate we are about our food. See how we care as we buy those Fairtrade bananas. We understand that you have to pay for quality, don't we?
At first sight, it seems obvious why JLP should have a competitive advantage over conventional big retailers. It appears to have zero cost of capital, since it has no shareholders who must be fed with dividends. The bonus paid to the staff is a sort of equivalent, but that allows basic wage rates to be lower than at other retailers.
Mayfield's predecessor, Sir Stuart Hampson, used to get upset at this accusation. He started the process of modernising the business, using capital generated from sales or borrowed. The original gift of John Spedan Lewis, who gave the business to its then employees, was long ago and (in today's numbers) very small. Hampson inherited a complacent company which opened at the convenience of its employees and where decline was only too apparent to customers. A charismatic former civil servant, he modernised the shops and the shopkeepers in equal measure — making them open seven days a week instead of five and, for example, halving the 100 managers in the Oxford Street store. Each partner now gets an annual survey inviting him (or, more likely, her) to rate management. Not surprisingly, 94 per cent of the surveys are returned, and not all make pleasant reading for the suits.
Mayfield is frightfully excited about all this, and the latest figures show why. In a deteriorating retail environment, first-half profits rose by 50 per cent, sending a frisson through the workforce. 'How many other companies find their employees buzzing about the interim results?' he asks. He adds that it's too early to speculate on bonus levels — but that didn't stop others guessing that it could be as high as 20 per cent of salary.
Hampson retired when he hit 60 last January. His was a tough act to follow, but Mayfield looks and sounds just like him One insider said: 'We used to joke that he was Hampson's son.' At 40, Mayfield is hardly young enough to be Hampson junior, but he could be from the same mould. With a background in the Scots Guards, Smith Kline and McKinsey, he joined JLP in 2000, and was fast-tracked on to the board in 2001.
The idea of partnership sounds cosy, until somebody decides to break it. One of Mayfield's first jobs has been to oversee the sale of two small textile businesses, with 225 partners on their payrolls, which had lost £40 million in five years. 'We know we're never going to get it right for the partners there,' he says. JLP has contributed £2 million to ease them into the capitalist mainstream, or 'roughly the value of the benefits over the next two years'. They also keep their existing redundancy entitlements until 2009. All the same, it's an awkward moment. 'When you do the difficult things it really tests your principles,' he admits.
Such setbacks aside, this is clearly a terrific business with a hugely trusted brand. Somehow, it's less uncomfortable to allow John Lewis to build a profile of your lifestyle, as it's doing through its Greenbee financial services arm, than it is to reveal all to Tesco. Home insurance is very successful, says Mayfield, partly because there is no limit on individual asset values in claims. Trust cuts both ways, he hopes.
'Partnership' doubtless helps, as does the old 'never knowingly undersold' slogan — once you've worked out what it means, and you get over the disappointment of finding that it doesn't apply to web-based competitors. Thanks to John Spedan Lewis's seed corn, the company can contemplate 12 new department stores by 2014, at around £30 million apiece, as well as 50 new Waitrose stores costing £800 million, all financed with retained profits and debt.
This business would seem to be a model for others, but there's nothing like it on the high street. To build a big retail business today needs extraordinary nerve, lots of capital and huge energy. It's hard to imagine Philip Green, say, deciding to give Topshop to the workforce rather than leaving the empire to Tina. Even if he did, the temptation to cash it all in might prove impossible for his former shopgirls to resist.
So this unique example of corporate biodiversity is now attempting something new, or so Mayfield claims. The food hall is the result of a team of partners shopping and eating their way round the world's food shops for a month (it's tough at JLP) from Europe and Japan to Borough Market. 'We'll have a wonderful chocolatier, a proper butcher on Oxford Street and cheeses to die for,' he drools. From 3 October, we'll find out whether his first gamble is going to pay off for his vast partnership.
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