Lower sales of homewares and electrical goods as well as higher costs have impact

John Lewis has warned of worsening conditions on the high street as the department store and supermarket group slumped to its first-ever half-year loss.

The company, which owns the John Lewis department stores and Waitrose, made an underlying pre-tax loss of £25.9m in the six months to 27 July after making a profit of £800,000 in the same period a year before.

Sir Charlie Mayfield, the chair of the staff-owned retailer, said the loss reflected lower sales of homewares and electrical goods as well as higher costs. The company said it had ploughed money into new IT systems and increased basic staff pay, although it cut back on its annual bonus payout in March.

Mayfield said: “It’s disappointing but not entirely surprising … this year conditions have worsened. [The company faced] sales and margin pressure and cost headwinds.”

As shoppers shy away from expensive purchases for their homes, such as sofas and TVs, in the face of a stagnant housing market and uncertain economic outlook, the John Lewis department stores slid to an underlying loss of £61.8m.

Troubles in the department store reflect upheaval in the wider sector caused by the shift to online shopping. As more people buy goods on their phones or laptops, shopper numbers on high streets are falling just as the cost of running large stores has increased as a result of changes in property taxes and the minimum wage.

Brands, which traditionally relied on department stores to promote their goods, are also increasingly able to go direct to shoppers, by selling online or using social media to promote their own stores.

The UK department stores Debenhams and House of Fraser have entered administration in the past 18 months. Both continue to trade after rescue deals but Debenhams is to close more than 20 stores after Christmas, while House of Fraser is also shutting outlets. Sports Direct, which owns House of Fraser, has said the chain is losing £1m a week and its problems could be “terminal”.

John Lewis has tried to differentiate itself by investing in extra services such as personal shopping for men as well as increasing the amount of own-label and exclusive products on offer.

Sofie Willmott, an analyst at the market research firm GlobalData said: ‘‘John Lewis’s poor performance reflects the extremely tough trading environment and how even its primarily [wealthy] shoppers are cutting back amid the doom and gloom of unfolding Brexit uncertainty.”

Profits at Waitrose rose by £14.1m to £110m, buoyed by one-off gains from the sale of properties as it moves unwanted stores. Both chains recorded a fall in sales, with Waitrose down 0.8% and John Lewis down 1.8%.

Greg Lawless, a retail analyst at Shore Capital said Waitrose’s performance was “solid in a tough grocery market. [Waitrose] has enough self-help levers to plot its own course. In contrast, the department store chain’s performance can only be described as disappointing.”

Mayfield said he expected retail conditions to remain challenging particularly if the UK leaves the EU without a deal.

The group has tried to bolster its financial resilience in case of a disorderly Brexit by reducing debt, hoarding cash and reducing its exposure to swings in the currency markets, as well as stockpiling some products, including wine, olive oil and canned goods.

Mayfield said a no-deal departure from the EU could affect sales of non-essential items in the run-up to Christmas. “Brexit continues to weigh on consumer sentiment at a crucial time for the sector as we enter the peak trading period,” he said.

Waitrose said online sales rose by nearly 11% but it also revealed it had ditched a tie-up with Today Development Partners, the technology company it signed up in May to help it drive online grocery sales when a long-term partnership with the delivery specialist Ocado ends next year.

Rob Collins, the managing director of Waitrose, would not comment on the split with TDP, which is headed by Jonathan Faiman, a former Goldman Sachs banker who left Ocado in 2009, and Mo Gawdat, the former chief business officer of Google X, the search engine’s innovation lab.

He said it could take Waitrose slightly longer to introduce the kind of high-tech automation it had been discussing with TDP but it still expected to treble the size of its online business to £1bn annually in three years. The company will be using in-house expertise and working with other partners to do so.

The half-year difficulties come after John Lewis slashed its annual staff bonus to the lowest level in 66 years following a severe slump in annual profits at its department store chain.

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The company’s 83,900 workers, known as partners because they jointly own the business, received a payout of 3% of their annual salary, down from 18% in 2011.

The group’s gold-standard pension scheme has also been cut. The accounts show the group gained a £249m one-off benefit from the closure of the defined benefit scheme.

As a result, total half-year pre-tax profit rose to £191.5m from £6m a year before, after other one-off costs including £37.5m on restructuring and a £10m benefit from a legal case, which the company refused to comment on. Restructuring costs covered redundancies at Waitrose and the department stores.