Retail giant John Lewis Partnership has said it will pay out its lowest staff bonus since 1953 as it revealed a 23% profits plunge and store closure plans.

The group said it is cutting its staff bonus for the seventh year running, to 2% of annual salary, after seeing underlying pre-tax profits tumble to £123 million for the year to January 25.

New chairwoman Dame Sharon White – who took the helm at the group behind John Lewis department stores and Waitrose supermarkets last month – outlined a plan to return the group to profit growth, including “right sizing” its store estate and slimming down its head office.

She also hinted that the retailer’s long-time slogan “Never Knowingly Undersold” price match could be “modernising” as it struggles to compete on price with online giants and discount events at rivals.

The new chief explained: “We’ve had fair value as part of our proposition for almost 100 years and fair value will continue to be part of our proposition going forward, whether that’s in a more modernised form or not.”

The group also announced that three Waitrose stores will close later this year – at Helensburgh in Scotland, Four Oaks in the West Midlands, and Waterlooville near Portsmouth – as part of the overhaul.

Dame Sharon said: “We need to reverse our profit decline and return to growth so that we can invest more in our customers and in our partners.

“This will require a transformation in how we operate as a partnership and could take three to five years to show results.

“We are stepping into a vital new phase for the partnership and I have no doubt we will come through it stronger.”

Dame Sharon – the former chief of communications watchdog Ofcom – said staff affected by store closures who wish to stay with the group will be “actively supported” to do so.

But there was some cheer as she unveiled plans to invest in Waitrose online, ahead of its tie-up with Ocado ending in September, with plans to hire 2,400 new staff and build a new fulfilment centre in Enfield, north London.

Her strategic review will be completed by the autumn and she will update further on actions at half-year results, but she stressed that the group would remain employee-owned and would keep its two brands, John Lewis and Waitrose.

She said: “These are the most challenging but exciting times in retail for a generation.”

Results show the third consecutive year of falling annual profits, which came after like-for-like sales dropped 2.7% across John Lewis department stores and slipped 0.2% at Waitrose.

This pushed the John Lewis chain to a £37 million statutory loss, against earnings of £92.6 million the previous year, while Waitrose put in a more robust performance with a 6.4% rise in earnings to £211.9 million.

While cutting the staff bonus, Ms White stopped short of axing it altogether despite her predecessor, Sir Charlie Mayfield, warning in January that employees may miss out.

The group was thrown into chaos when John Lewis managing director Paula Nickolds was sacked in January just three months after the managing director of Waitrose, Rob Collins, also stepped down following a major restructuring.

Julie Palmer, partner at Begbies Traynor, said: “John Lewis’ fall from grace has been spectacular.

“Once the envy of the retail industry, the company has suffered dismal trading performances over the past few years, demonstrating that the retail race is so fast that even those seemingly on an unstoppable march one year can be vulnerable the next.”