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Profits at the John Lewis Partnership have fallen to almost zero in the first half of the year as its department store chain matched discounting “extravaganza days” by rivals.

John Lewis Partnership chairman Sir Charlie Mayfield said the retail sector was facing “challenging times”. Its results, which include Waitrose, showed profits for the six months to 28 July sank 99% from last year to £1.2m. The retailer also warned that full-year profits would be “substantially lower”.

The company is rebranding its stores to John Lewis & Partners and Waitrose & Partners to highlight the chain’s 85,000 members of staff, known as “partners” who are given an annual bonus based on the chain’s profits.

“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 for the partnership as a whole,” the retailer said.

In the first six months, profits at the John Lewis department store business were hit hardest. Sir Charlie said that the stores’ profit margins had been squeezed in “what has been the most promotional market we’ve seen in almost a decade”.

He told the BBC’s Today programme: “The biggest single reason for the decline in profits is all about margin”.

The department store pledges to be “never knowingly undersold” – cutting prices to match those of competitors, which have also been discounting.

“This year there has been twice as many extravaganza days as there were a year ago and actually the discounts have been even deeper,” he said.

“We’re never knowingly undersold at John Lewis, so of course we are matching that, and that affects margins.”

Sir Charlie said the chain had also not been passing on to consumers all of the inflationary impact from the weakness in sterling. The pound has slumped since the vote to leave the EU, pushing up the cost of imported produce.

Analysts said the results demonstrated the impact of the price-matching promise. Steve Dresser, retail analyst at Grocery Insight, said: “The business feels like it’s broken. Never knowingly unsold needs refining, badly”.

The department store sector has been undergoing a period of change. Sports Direct bought House of Fraser in August while Debenhams, in which Sports Direct has a 29.7% stake, was this week forced to stress that its sales had not collapsed. Sport Direct has also been forced to deny that it does intend to make a full bid for Debenhams.

Julie Palmer, partner at Begbies Traynor, said the profits fall at John Lewis heralded further problems for the retail sector.

“This brand was hailed as the model to which all should follow, and as a commercial and customer success – make no mistake, for the high street this is as significant as the fall of the Roman empire.

“And much like the fall of Rome, it’s not just the empire that suffers, the infrastructure that supplies it will too. The UK industry must steel itself for dark times to rise again.”

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