JOHN LEWIS’ foray into the housing market appears off to a bad start after a report commissioned by the company revealed its first flagship project was likely to result in a paper loss of £57m.
Analysis conducted by Quod, reported by the Sunday Telegraph, suggests that whilst a project in Ealing will cost around £240m it is likely to only be worth around £187m at current asset values.
The scheme is one of three put into motion by chairman Dame Sharon White, whose strategy at the historic partnership includes a diversification away from retail.
Analysts told the Telegraph that the scheme had seen cost inflation as a result of rising material prices and new regulatory measures.
However doing so will require a significant uptick in financial fortunes, with a £230m loss last year resulting in the loss of the famed staff bonus. A raft of personnel changes in senior roles has also been seen as cause for concern.
Despite a focus on cost-savings across the retail business, White has pushed forward with the controversial property scheme.
At the end of last year it announced a £500m joint-venture with Abrdn to build 1,000 rental homes.
A spokesman for the John Lewis Partnership told the newspaper that “we want to make long-term commitments to our communities through our stores and building much needed homes.
“We can take a longer term view and want to create as many affordable homes as we can for key workers such as nurses, teachers, the police and care providers.”
Analysis: Another bad headline for an under-pressure boss
Dame Sharon White’s appointment as John Lewis boss, despite zero experience in retail, raised eyebrows. That was no fault of her own. But her decision to push John Lewis into the property market — again, a market in which it’s not obvious she’s got any particular knowledge — is entirely on her.
There is growing pressure. After all, plenty of retailers have already turned the corner after the pandemic. John Lewis meanwhile disappointed analysts with a dramatic full-year loss and is now facing further accounting losses on one of its flagship property projects.
The logic for the move seemed to be that, well, Britain’s got a housing crisis, and whoever goes in to fix it might make some cash out of it. If it were that easy, however, everybody would be doing it. The logic that it would put a Waitrose nearby is the same as if Odeon went into the resi game but promised investors they’d put two screens in the basement.
John Lewis have responded to the reports in the Telegraph over the weekend by stressing that the firm’s affordable housing will be available to nurses and care providers, as if others are simply incapable of doing so. One analyst told our rival paper it’s unlikely the project would have been undertaken at a listed company. Shareholders wouldn’t have been thrilled, certainly.
Whether John Lewis’ employees will be happy with White’s property play if they don’t get their bonus next year is an open question. AS..