John Lewis has cut its staff bonus after posting a 45 per cent fall in profits as the retailer battles against high street woes.
Profit before tax dropped to £160m last year as the department store chain slashed prices in a bid to combat declining footfall and excess retail space.
Earlier this year the department store chain warned of profits would be “substantially lower” and said it was considering scrapping its staff bonus for the first time since 1953.
John Lewis opted to keep the bonus, but slashed it to three per cent, down from five per cent last year and the lowest level for 65 years.
The company said its supermarket subsidiary Waitrose grew operating profits by 18 per cent to £203.2m, boosted by improved margins.
But this growth was offset by the department store, where weaker sales in its home department and narrowing margins led to a 55.5 per cent decline in profits.
Chairman Sir Charlie Mayfield said: “In line with expectations set out in June, our partnership profits before exceptionals have finished substantially lower in what has been a challenging year, particularly in non-food.”
“We expect 2019 trading conditions to remain challenging, but are confident in our strategic direction and customer offer across both brands,” he added.
John Lewis cut its net debt by £401m to £2.7bn, which it said is part of a strategy to bolster its cash reserves as a defence against market uncertainty.
Despite the plunging profits, the firm said it plans to maintain its annual investment of between £400m and £500m a year, and will increase its average hourly wage by around 4.5 per cent in its pay review in April.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “A bonus of three per cent for John Lewis partners is hardly cause for celebration, but given current trading conditions, it’s better than a poke in the eye.”
“Clearly things on the UK high street aren’t pretty, and if the bellwether John Lewis is creaking, you can be sure others are feeling the pain,” he added.
Michael O’Grady, principal forecast analyst at Forrester, added that the retailer may need to rethink its “never knowingly undersold” strategy after profit margins fell 90 per cent in the first half of 2018.
“John Lewis needs to adjust its strategy to focus on increasing sales to grow market share or grow its margins to attract investors. In order for retailers to prosper in today’s complex retail environment, retailers need to focus on managing store overheads, differentiating products and services, sell more full priced items, diversify sales from products to services and retain and attract shoppers,” he added.