Struggling British department store group Debenhams is to close up to 50 stores – nearly one-third of its store base – putting around 4,000 jobs at risk amid record annual losses.
The retail group, which operates around 165 stores, this morning (25 October) revealed a GBP491.5m (US$634.3m) pre-tax loss, against profits of GBP59m the year before. This was primarily a result of exceptional write-downs of GBP512.4m related to store and lease provisions. Group gross transaction value (GTV) decreased 1.8% to GBP2.9bn, while group statutory revenue declined by 2.5% to GBP2.3bn. ?
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CEO Sergio Bucher said the company is taking “tough decisions” on stores where financial performance is likely to deteriorate over time. The company had previously said it planned to close ten stores.
In its update, the chief executive said the 40 stores earmarked for closure, beyond ten the retailer had originally identified, are currently “contributing positively”. Yet he added: “Rolling forward current trends, we do not believe they will remain profitable in future years and therefore we intend to exit these stores over the next three to five years.”
Like others facing pressure on the UK high street, Debenhams has struggled to adapt as shoppers switch to spending more online. Earlier this month, department store chain House of Fraser was bought out of administration by Sports Direct, while Mothercare and Marks & Spencer have both announced store closures.
Having issued three profit warnings this year, Debenhams is in the midst of a redesign strategy aimed at finding efficiencies through simplifying and focusing the business, with an eye on becoming more digitally-driven. There has also been a focus on selling assets to shore up the group’s finances, including its Danish chain Magasin du Nord.
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By GlobalDataBucher, however, is confident the company can turn its fortunes around. “Debenhams remains a strong and trusted brand. Our transformation strategy is gaining traction, with positive results from new product and new formats…and digital growth that is outpacing the market. With a strengthened balance sheet, we will focus investment behind our strategic priorities and ensure that Debenhams has a sustainable and profitable future.”
Fashion gains
Under its ongoing revamp, Debenhams has focused on revitalising its fashion department. This has seen the appointment of Steven Cook as managing director of fashion and home in January, and a new alignment put into place for each division and channel with fewer management layers.
The retailer has also begun the process of refreshing its portfolio of designers, phasing out Ben de Lisi and John Rocha, and introducing London Fashion Week award winner Richard Quinn. With upgraded fabrics in Designers and product that is better differentiated and “true to brand”, Debenhams says it has seen faster sell-through despite the wider discount-driven environment.
The retailer says it has maintained clothing market share this year, despite the “tough” trading environment, and has gained share in womenswear.
“Although we are seeing the strongest sell-through performance in stores with new merchandise presentation, the improvement in fashion and home product touches all stores and our digital channels too,” the retailer said in its update.
“This season marks a step forward in womenswear, with around half the own bought range now reflecting better value, better fabrics and improved brand differentiation. So far this is reflected in product turning on average two weeks faster than last year.”
Harsha Wickremasinghe, head of business intelligence at Livingstone, believes Debenhams’ store closure announcement highlights just how unfit for purpose the department store model is in today’s retail environment.
“The embattled retailer has outlined hard-hitting plans to transform itself into a relevant retail entity for the 21st century…but it smacks of desperation and begs the question as to why it has taken so long to address basic issues,” she says. “Debenhams sits firmly in the squeezed middle and it’s lackluster stores, uninspiring brand mix and poor digital capabilities has left it woefully exposed at a time of intense structural change in retail. This has inevitably enabled more focused competitors to rip chunks out of its soft, bloated underbelly.”
