John Lewis online sales to represent 40% of turnover by 2020

John Lewis managing director Andy Street unveiled the target this morning after revealing that online sales surged 17% to £439.9m in its first half. Web sales accounted for 13% of revenue in 2009/10.

Two thirds of John Lewis’ customers use more than one channel when they shop with the retailer, which has invested heavily in its omnichannel capabilities. Later this month John Lewis will launch its Collect+ service, enabling customers to collect orders from 5,000 convenience stores across the UK, and expanding the retailers’ reach into regions where it has traditionally been underrepresented, including Scotland, Northern Ireland and Wales.

John Lewis this morning revealed revenue increased 6.5% to £1.37bn in the six months to July 27, powered by its electrical and home technology (EHT) directorate, where sales surged 15.7%. Street said the retailer is third in the market and is chasing second place Argos, and expects to overtake the retailer next year. “The gap between us and Argos is decreasing,” said Street. “Our ambition is to be second in that market….next year.”

Street said John Lewis’ “must-have products, innovation, confidence in the brand and after-sales service” helped propel sales in the category. The retailer was fifth in the market just five years ago.

However, the emphasis of EHT in the sales mix has put pressure on margins, and Street said John Lewis has been striving to offset this by improving margins in the category itself through initiatives including better stock management, as well as introducing new revenue streams such as services which have stronger margins.

Street said offers including delivery, installation, insurance and broadband are “additive” to overall margins, which he said were “ahead year on year” in the first half. He said John Lewis would look to launch more services to build on the trust of the John Lewis brand, although declined to give further details.

 “There is more to come,” said Street. “The John Lewis brand has trust, and we’re looking to apply that to other areas, in niches related to our products.”

The retailer continues to eye overseas expansion via concessions in Asian department stores, following its tie-up with Korean retailer Shinsegae. “We’re in negotiations with 10 more markets,” said Street.

He remained bullish on the outlook for Christmas and said he was “supremely confident” John Lewis would again outperform the market through its online fulfilment capability, product innovation and festive marketing campaign, which has won plaudits in recent years.

Street remained optimistic on the outlook. “The recovery has started, it has taken hold and it will accelerate. And it’s not a London recovery, some of our best-performing stores are outside of London. It’s encouraging to see that ripple effect.”

Operating profit before restructuring costs, relating to store management streamlining, was up 9.9% to £50.1m in the half. Like-for-like sales jumped 5.1% and John Lewis maintained the same level of growth in the first six weeks of the second half.

In the first half home sales were up 1.1% and it maintained its second position in the market behind Ikea, while fashion sales jumped 4.2%.

Street said it was a “good half” particularly considering the “cracking year we had last year”.

John Lewis plans several shop openings in the coming months, including a smaller department store in York and a full-line store in Birmingham next year. “The pipeline is fattening again,” he said.