John Lewis: Would you leave your company to the workers?

John Lewis the UK's favourite retailer with sustained profitable growth and untouchable customer loyalty and advocacy. What is the secret to their success? They are a workers' co-operative, owned and operated for the benefit of their employees.

John Lewis is the “UK’s favourite retailer”, with ~40 stores across the United Kingdom and ~£10B (~$15B) in annual revenues. Each “full-line” department store stocks an assortment of fashion, electrical and home-wares, targeted at the middle class. However, unlike most retailers across the UK and around the world, John Lewis isn’t owned by shareholders, a Private Equity fund or the founding family; it is owned by each and every one of it’s 91,000 workers.

Unique Ownership Model

John Lewis is a Partnership. It has no employees – only owners known as “Partners”. The founder John Spedan Lewis established a single department store and began to grow the business in the late 19th century. As his age advanced, he decided not to pass the business on through his family, but to establish it as a Trust for the benefit of the workers.

The ultimate objective of the John Lewis Partnership is the “happiness of all it’s members”, enshrined in a constitution which can only be dissolved by an act of parliament! This mission is assured through the Partnership Council of elected representatives from each branch and a board of Directors primarily elected from the rank and file employees.

Behind the scenes, John Lewis is structured to support their Partners. The company owns several holiday resorts in the UK and a number of sailing boats – all available to Partners at subsidised rates. Their cafeteria is high quality and low cost, with every £1 of partner spending matched by £1 from the company. Partners also enjoy generous discounts on everything in the store and after 25 years of service are rewarded with 6 months of paid vacation.

This unique ownership model culminates each year with the award of the bonus. One Thursday morning, Partners gather in each store. One amongst them is selected to open a giant envelope containing a single percentage. This number will be their annual bonus – the same percentage applied to your base salary whether you wash pans in the kitchen or are the Managing Director of the whole company.

Why does this matter? This sense of equity drives a collaborative and supportive culture where everyone stands to gain from the success of the business. These highly motivated staff drive the success of the business and create a special culture:

Differentiated Service & Value

Many retailers claim to be the cheapest on the High Street, but John Lewis guarantees it. With their “Never Knowingly Undersold” policy, they have a team who regularly visit the stores of key competitors and pro-actively lower John Lewis’ prices to match, even during promotional periods. Furthermore, if they miss something you spot, they’ll refund the difference.

Not only do they offer low prices, but they also offer high levels of customer service. Enter a John Lewis store and you will find friendly, proactive and helpful “Partners” ready to help. Unlike other high-end US department stores like Nordstrom, none of these employees work on commission, instead being incentivised by the prospect of their annual bonus share and the satisfaction of helping their customers.

Why does John Lewis focus on Service and Value? And how does their business model support them?

Simply put; loyalty. John Lewis aims to serve customers from cradle to grave and focuses on establishing trust and advocacy to drive long-term customer relationships. Consequently, they resist the temptation to maximise profit on each sale, but instead offer consistent value to bring customers back to the store time after time. This loyalty is also driven by service, and having employees who own the business aligns incentives and leads to highly motivated and invested sales personnel. Furthermore, this form of private ownership avoids the pressure created by quarterly earnings reporting and short-term results at the expense of long-term customer relationships.

Innovation

John Lewis has also led on innovation, using the internet and mobile to support it’s mission of high quality service. Through the purchase of “buy.com” in 2002 they were an early adopter of e-retail and have remained the front of this curve with high volumes (36% of sales are online) and through innovations in click & collect (56% of online orders are collected in stores) and mobile (this channel delivered over 50% of online sales last Christmas).

Sustained Profitability

The unique business model, a focus on loyalty through value and service, and continual innovation have helped John Lewis achieve their ultimate objective of sustained profitability and revenue growth of ~8% per year over the last decade.

John Lewis shows a radically different way for businesses to operate which has been hugely successful. In an age of greater social responsibility and where millennial workers are looking for greater meaning and autonomy in their working life, does John Lewis present a successful model to emulate? Can we imagine the HBS leaders of the future being willing to put their successful enterprises into trust for the benefit of their employees?

Sources:

http://www.johnlewispartnership.co.uk/financials.html

http://www.dailymail.co.uk/news/article-2611789/John-Lewis-shop-Department-store-named-Britains-best-retailer-tenth-time-past-15-years.html

http://www.independent.co.uk/news/business/news/john-lewis-click-and-collect-service-overtakes-home-delivery-as-online-sales-grow-19-9957229.html

https://en.wikipedia.org/wiki/John_Lewis_Partnership

http://www.johnlewispartnership.co.uk/content/dam/cws/pdfs/about%20us/our%20constitution/john-lewis-partnership-constitution.pdf

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2 thoughts on “John Lewis: Would you leave your company to the workers?

  1. Really interesting post, James. There is definitely an incentive for workers to want the company to be successful. This model reminds me of the Greenbay Packers and the intense pride that everyone in Greenbay has for their team. I see this ownership model working extremely well for service-oriented businesses, but question its ability to be beneficial for businesses that are based on a specific technology or product.

  2. Very interesting! Do you think the unique model limits their expansion internationally, or out of the UK? How do you think they could maintain the same sense of a true partnership without the benefit of being physically close?

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