The significance of Competitive Strength compared to other factors

It is no secret that business is tough for retailers and likely to get tougher. In July and again in August, companies including Kingfisher, the B&Q owner, and Sports Direct and JD Sports, the sportswear retailers, warned that slowing consumer spending has hit sales. This followed downbeat statements from retail big hitters Tesco and Marks & Spencer, who earlier in July said that sales growth is moderating.

Analysts at Citigroup have downgraded the valuations of the whole of the non-food retail sector. The bank slashed sales growth targets for 2008 from 1.8 per cent to zero, based on what happened in 2005. “If true, the sector will suffer another severe profits reversal," the bank said. The bank is particularly concerned about retailers with exposure to UK consumers, such as Argos and Homebase owner Home Retail Group. A raft of insolvencies are expected among medium-sized chains between now and February 2008. "It is tough out there and unless you have scale I can't see it getting any easier," said a retail expert last night.

On precisely the same date as the above report came this trading update from John Lewis Partnership.
Sales on the first day of John Lewis's summer clearance sale this month hit £18.8m, up by a third on the previous year and an all-time company record. Overall, sales for John Lewis's first half - which ended last night - were 6.7 per cent higher than last year. Sales on the company's website, John Lewis Direct, are up by 40 per cent year-on-year.

Meanwhile, John Lewis will open its first food hall at its Oxford Street store on October 3. Produce in the hall, which will include a cheese room, delicatessen and fine wine area, will be supplied by Waitrose, John Lewis's sister company. The concept could be rolled out nationally, with the next one opening in Cardiff in 2009.

Andy Street, the recently appointed managing director of John Lewis, said the retailer had extensive expansion plans. The 26-store chain has 22 new stores at various stages of development, including one near the 2012 Olympic site in Stratford, east London. "Only half our target customers have access to a John Lewis," Street said. He said the retailer was putting 25 more staff on tills in every store to improve customer service. "As the markets are getting tougher and people are cutting down on costs, we are investing in our front line."

John Lewis show all the signs of being in an “Excellence” to “Free” Competitive Strength Condition. This gives them greater choice in how they respond to tougher market conditions. They are going on the offensive, opening more stores, rolling out new concepts and improving customer service. Many of their competitors with weaker competitive strength conditions will have no choice but to adopt defensive strategies, cutting costs, lowering prices, reducing stocks and customer service and putting expansion plans on hold and hope to ride out the storm.

John Lewis are bucking the trend in spite of having less “scale” than many of their competitors in most of the product categories they trade in and being entirely exposed to the UK consumer. Unfortunately in order to share in the success of John Lewis you cannot actually buy their shares, but you can apply for a job with them. Oh yes and they still have defined benefits employee pension scheme!