Expansion during Recession

毛慧洁

【Abstract】Companies take different strategies to survive economic recessions. John Lewis decided to expand in spite of the depressed economy in 2009. The article tends to analyze the reasons for its move through a documentary and provide new perspectives into the companys operation.

【Key words】John Lewis; economic recession; expansion strategy

I. Introduction

When an economic recession strikes, companies react differently. Some choose to contract while others to expand, and they have their own rationales. This article tends to analyze the reasons for John Lewis expansion strategy by a documentary and provide insight into the companys operation.

John Lewis is a chain of up-market department stores operating throughout Britain. There are 32 John Lewis stores in England, Wales and Scotland. A documentary about John Lewis was made to explore whether a business model developed in the 1920s can survive the commercial turmoil of the 21st century. The documentary includes three episodes. Episode 1 looks at the impacts of the recession on John Lewis. Episode 2 sees the companys steps to boost sales and control costs. The fashion floors are revamped, and a big shop is built in Cardiff. Episode 3 looks to the future in which John Lewis is expanding its fashion offering on-line.

II. Reasons for Expansion

Superficially it is hard to comprehend why John Lewis expanded in the worst recession in its history. Its operating profit of 2009 dropped by 27.4%,and the new store cost nearly 1/4 of the operating profit. Besides, John Lewis was going to open a pilot store focusing on electrical and home technology products. However, there are deeper reasons for the move as listed below.

First, the new store in Cardiff is to meet future needs. A managing director thought it was not open for this year, but for the next fifty years. Take the shop in Liverpool for example. The shop relocated as part of Liverpools development in 2008 just before the recession began. The sales exceeded expectations. Depressing in 2009, the economy will revive eventually. Besides, the major clientele of John Lewis are the middle and upper classes who are less sensitive to change of economy. A new store can offer them more buying choices, bringing more profits to John Lewis.

Second, the decision to build a store in Cardiff is in line with the decision to revise the fashion department. Not known as a fashion retailer, it has decided to change the clothing division to attract younger customers without alienating the elder ones. To achieve this, it is better to show the new fashion clothing in a new store. If it is shown in the existing ones, the elder customers may not be used to the change and feel alienated. A new store can appear as a new image of fashion retailer and achieve the goal of attracting younger customers and retaining elder ones.

Third, opening new stores will help enhance the social reputation of John Lewis. New stores mean job opportunities and tax for local government, thus boosting local economic development. The new store needs 750 new workers, let alone other jobs created in construction and decoration. One of the newly-recruited employees said he had been out of job for six months and was thrilled to be hired. It helps John Lewis establish its image as a socially responsible company.

endprint

Last, the opening of a pilot shop of “At Home” will help consolidate the core competency of John Lewis—personal and specialist service. Electrical and home technology has been one of its best-selling departments. Its sales growth is 6% in 2008and 2.9% even in the uncertain 20092. A specialized shop can develop tailor-made strategies to better adapt to the market with a wide range of products. It will gain advantages over suppliers, resulting in lower prices. Customers can enjoy better shopping experience. The pilot shop need not worry about flow of customers because it is located at a commerce centre where there are already many shoppers. It only needs to attract more into it.

The strategies prove to be successful. In 2010 with the slow recovery of economy, its operating profit increases by 15%.The annual report states “our shop in Cardiff is building a firm foundation in this new location, and sales at our At Home trial format in Poole have exceeded expectations”.

III. Summary

Expansion bears certain risks. Expansion during recession is of more peril. Blind expansion may destroy rather than rescue a company if decision-makers do not understand current conditions and future trends clearly. But expansion also means more opportunities. A company must be familiar with its internal and external environments to expand successfully

endprint