Retailer John Lewis has returned to paying its employees a full-year bonus and will shell out a further £54 million on top of that for a 2 per cent pay rise to ensure all staff are earning the minimum of the real living wage.

The move comes as the group’s eponymous department store chain racked up record annual sales for the year to January 29. Its upmarket Waitrose chain of supermarkets posted a 1% increase in revenues, though trading profits fell due to “significant” cost inflation.

Group profit before exceptional items was £181m, up 38% on the previous year and more than double that of 2020. Exceptional charges of £161m were mostly related to the cost of redundances, the closure of eight department stores and a distribution depot, and its move out of a central London office building.

The group, which is owned by its 78,000 staff who are known as “partners”, cut its bonus to zero for the first time in 67 years after slumping to a £517m loss for 2020. In response to the collapse triggered by the pandemic, it set out a five-year recovery plan which included the resumption of staff payouts once debt had been reduced and underlying profits deemed sustainably above £150m.

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Though the partnership had previously warned it was unlikely to pay a bonus this year, its rebound in fortunes means staff will get a 3% bonus, equivalent to 1.5 weeks of pay. The group’s executive team, led by chairman Sharon White, said they will donate their bonuses to the British Red Cross to help support victims of the war in Ukraine.

“With our partners, like the whole country, facing a cost-of-living squeeze, we believe that this is the right time to pay the voluntary real living wage nationwide,” Ms White said. “In addition, this year’s pay review has been set at 2%, making the total pay investment £54m [excluding bonus, which adds a further £46m].”

Companies that commit to the real living wage pay an hourly rate that is independently calculated to reflect rising living costs. This currently stands at £11.05 in London and £9.90 elsewhere in the UK, compared to the current legally-binding minimum wage of £8.91, which is set to rise to £9.50 from the start of April.

Ms White added that John Lewis would be “increasingly thinking about the value proposition” for customers facing a squeeze on their disposable incomes. This includes a £500m commitment to give John Lewis customers “everyday quality and value”, with an improved customer loyalty scheme to be introduced later this year.

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“We made a good start to our partnership plan but are only one year through our five-year transformation,” she said.

“Looking ahead, we see continued uncertainty from global events, affecting the economic environment, our customers, partners and society. As inflation and energy prices rise, our customers face higher living costs.”

The company does not plan more jobs cuts or store closures in the year ahead, and will instead invest heavily in its remaining stores and its online proposition to reduce the cost of handling products and cut down on waste. It is also expanding into other areas such as financial services and real estate to compensate for thin margins in its core retail business.

Same-store sales at John Lewis were up 8% at £4.9 billion, with growth driven by fewer months of lockdown and the closure of 16 underperforming stores since the start of the pandemic. Trading profit at operating level was 37% higher at £758m.

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Online accounted for two-thirds of department store sales during the year, up from 42% before the pandemic.

Waitrose sales edged 1% higher to £7.5bn, but operating profits sank 11% to £1bn as it struggled with supply chain issues and the increased proportion of online sales, which carry lower profit margins. Online sales grew by 14% during the year, and now stand at 17% of total sales.

The group plans to invest £119m into its John Lewis stores, digital services and distribution capabilities.

It will invest a further £55m into refurbishing 23 Waitrose stores during the coming year, down from £90m last year. A further £72m will go towards inproving the grocer's digital services and distribution.

"This is a year of opportunity for the partnership, despite economic headwinds," Ms White said. "We have come through so much already and our solidarity will continue to carry us through."