Asos v Debenhams: The battle lines are drawn
One is the archetypal department store, the other an online-only success story, but Simon Neville says the lines are getting blurred and both groups are changing
Friday 25 October 2013
Michael Sharp, the veteran chief executive of the department store chain Debenhams, has admitted his company was a little slow off the mark when it came to creating an internet offering worthy of the 200-year-old retailer.
Male customers would receive email offers for dresses and lingerie, while click-and-collect was unheard of and the website was slow and clunky.
By comparison, online fashion retailer Asos has swathes of data on every single customer, knows each and every item they have bought and has screens dotted throughout its head office showing real-time sales data, including the customer's location, gender and items bought.
It has left Asos with a market value of £4.4bn while Debenhams is worth just £1.4bn, in arguably one of the clearest examples of traditional bricks-and-mortar retailers losing out to their younger online upstarts.
But all is not lost. Retail expert John Pal at Manchester Business School explained: "The department store format has often been compared to a dinosaur yet as Debenhams reaches its 200th year of trading there still seems cause for optimism as it spreads its risk by having a well-regarded international and online presence."
Online sales this year are up 46 per cent at £366.3m and now account for about 15 per cent of sales, which were up 2.5 per cent at £2.28bn and way ahead of Asos's £769m. But perhaps the most interesting aspect of Debenhams' online growth has been as a direct result of the new stores it has opened.
In Chesterfield, where the company recently opened its first store, bosses were amazed to see online business in the postcode area double in 12 months – a trend that has played out across other stores that have opened or been modernised. Mr Sharp said: "I think the future of retailing is multichannel. It is quite clear customers still shop over a number of different channels, and the more channels you have, the more they will spend with you. I think it's all joined up and will remain so."
He explained that 25 per cent of all online orders were collected from stores, up from 15 per cent last year, and he expects this to rise.
"It gives us an opportunity to get people into the stores, where they may browse, see the new layouts and make additional purchases," he said.
However, Debenhams may never get to a full gallop while it suffers from the high street's biggest bugbear – business rates. The British Retail Consortium has been campaigning for a 2 per cent cap on rates rises, and several high profile retailers have spoken out about the current system.
Mr Sharp added his voice to the debate and said the company had to carefully consider where to open new stores because rates were so high.
He said: "It's quite clear that the current method of calculating business rates is archaic and not fit for the future, let alone the multichannel world we are living in today. It's not about taxing online-only retailers but about challenging the nature of the business rates itself in the way it is applied."
And as business rates continue to rise in line with inflation, online-only retailers will only continue to see their major distribution costs fall as they become more efficient. Asos, for example, has announced an expansion of its US warehouse, meaning current US customers – including the First Lady, Michelle Obama – will no longer have their goods shipped from the UK. Previously returns also had to be sent back to the UK, at great expense.
Debenhams is making strong progress and has the potential to continue growing through its combined online and high street offer – although convincing the market might prove more difficult: its shares closed down 9 per cent last night.
Retail trio pick up millions in shares sales
Asos's founder and chief executive, Nick Robertson and his finance director Nicholas Beighton, have cashed in shares worth £103m – or 2.3 per cent of the company.
Their decision to take home the windfall came as Asos reported a 40 per cent jump in sales to £754m with pre-tax profits up 37 per cent to £54.7m.
They were joined by another retailing giant, Mike Ashley, who cashed in £106m of shares in Sports Direct – sending shares down 4 per cent.
The billionaire vowed not to sell any more shares for at least six months to calm investors who may be worried that he plans to remove even more money from the business – having sold £100m of shares in February. All three businessmen cashed in at a discount to the current trading price.
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