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John Lewis Partnership plc Annual Report and Accounts 2014


FACTORS AFFECTING FUTURE PERFORMANCE CONTINUED Value for money


Customers are demanding better value for money with little or no compromise on quality and innovation.


Overview Whilst we are seeing more encouraging signs for the economy as a whole, this has not yet come through as a significant increase in consumer spending. We keep a close eye on key macroeconomic indicators which reflect the overall prosperity of the economy and which also have an impact on consumers’ propensity to spend.


Inflation and Real Household


Disposable Income (RHDI) Why this matters RHDI is the amount of money that households have available for spending and saving after income taxes have been deducted. It provides an indication of how much consumers have to spend. In recent years inflation has outstripped consumers’ wage growth, putting continued pressure on RHDI.


Current trends Inflation is showing signs of stability but utility price rises may prevent it from reaching the Bank of England’s target of 2% and pose a risk of putting further pressure onto real disposable incomes. As a result, projected growth in RHDI is not expected to reach 2010 levels until 2015. This means that current improvements in the economy may not immediately translate into growth in consumer spending.


CPI inflation vs real household disposable income growth (%)


5


4 3 2 1 0


-1 2002 2006 Source: ONS and Verdict 2010 2014 2017 CPI inflation Real household disposable income growth


Consumer confidence Why this matters Consumer confidence is an economic indicator, which measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. It is a particularly important indicator for retailers, in conjunction with the increase of RHDI, as confidence increases the propensity for people to spend rather than save.


Current trends The latest data from GfK suggests that consumer confidence is continuing to pick up with increasingly positive news about the economic outlook.


GfK Consumer confidence index (%)


0


-10 -20 -30 -40


2008 Source: GfK


The performance above illustrates the recent recovery in consumer confidence after a number of challenging years. Lower consumer confidence combined with the advent of online has led to consumers becoming far more savvy in terms of shopping around, comparing prices and carefully selecting products.


2009 2010 2011 20122013 2014


Grocery buying patterns Whilst price has a part to play in buying decisions, consumers also consider product quality before purchasing. Recent research shows, for example, that following the horsemeat crisis, 33% of consumers have stopped buying cheap/value range meat and processed meat ranges and 12% have changed the supermarket they shop at, choosing to shop at more premium supermarkets. (Source: nVision online survey).


How the Partnership is responding


to these trends We continue to invest in developing better value products of excellent quality for our customers through innovation, and also by driving efficiency throughout our supply chain. We remain focussed on price-matching branded products and also extending our John Lewis Value and essential Waitrose ranges, which offer a range of good quality, staple items at competitive prices. At our John Lewis shops, our Never Knowingly Undersold promise, which has existed for 89 years, symbolises our commitment to ensuring our customers are getting good value for money when they shop with us.


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