JOHN Lewis has seen its first half profits almost wiped out as the group paid the price for its promise not to be knowingly undersold amid widespread discounting on the high street.

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The employee-owned group, which operates three John Lewis department stores and six Waitrose food outlets in Scotland, made £1.2 million profit before tax in the six months to July 28. That was down 99 per cent on the corresponding period last year.

Chairman Sir Charlie Mayfield said the group had faced the toughest market conditions it had seen in almost a decade.

He highlighted the pressure on margins John Lewis has suffered as a result of deciding not to pass on cost increases resulting from the fall in the pound since the Brexit vote and to stick with its Never Knowingly Undersold promise.

“We have seen an unprecedented level of price matching as other retailers have discounted heavily,” said Sir Charlie. Margins were also hit by shoppers shifting spending from big ticket items towards electronics.

Asked about trading in Scotland, a spokesperson for the group said it was unable to give a breakdown by store. John Lewis faced complications resulting from disruption at its department store in Edinburgh, which formed part of the old St James centre.

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The store is the only one left trading following the demolition of the centre. John Lewis has invested £24m in works designed to make it easier to shop while the rest of the centre is being redeveloped. The new complex is due to open in spring 2020.

The group’s Waitrose supermarkets operation fared better reporting a marked improvement in like-for-like sales in the second quarter and good progress in rebuilding margin, but its first half profits fell 12%.

Analysts said the news from John Lewis underlined the scale of the challenge facing some stores groups, amid competition from discounters and online retailers.

‘John Lewis is the bellwether of the UK retail sector, so the fact it’s finding life so hard is an indication of just how dire things are on the high street right now,” said Laith Khalaf at Hargreaves Lansdown.

House of Fraser went into administration and was sold to Mike Ashley’s Sports Direct in a pre-pack deal last month.On Monday Debenhams said it was working with experts on plans to strengthen its balance sheet after speculation it had appointed advisers to draw up “emergency turnaround plans”.

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Sir Charlie said: “With the level of uncertainty facing consumers and the economy, in part due to ongoing Brexit negotiations, forecasting is particularly difficult but we continue to expect full year profits to be substantially lower than last year.”

But he said the group had a strategy to achieve growth through differentiation rather than scale. This will involve recognising and enhancing the role partners play in driving its difference and competitiveness.The group rebranded as John Lewis & Partners recently.

It expects to be able to invest £400m-£500m per year in growth, with spending on that scale seen as crucial to long-term success, despite near-term pressures on profitability.

The group will stock more higher margin own brand products and develop new lines and services in areas such as wellbeing.

Sir Charlie said price matching had proved to be extremely valuable in terms of trust with customers.”Times like these test the real integrity of that promise,” he added.

The bonuses paid to partners have been cut in recent years. The 83,000 current partners include 3,200 in Scotland.

“Our financial priority remains to reduce our Debt Ratio,” said the group adding: “This is one of the reasons that has led us to hold back Partnership Bonus.”

The department stores made a £19.3m first half operating loss against £54.4m profit last time. Profits at Waitrose fell to £96.4m from £109.8m.