Debenhams results are dire but there may be some hopeful signs emerging

Almost half a billion pounds of annual losses, a third of its department stores set to close and thousands of jobs to be culled - but there is a way out of the mire, say experts

Ben Chapman
Thursday 25 October 2018 20:50 BST
Debenhams CEO Sergio Bucher promises his 26,000 staff he will 'try to protect as many jobs as we can' during closures

At first glance, it’s hard to see any positives in Debenhams’ disastrous results – the worst since it was founded as an upmarket West End drapers shop in 1788.

Almost half a billion pounds of annual losses, a third of its department stores set to close and thousands of jobs to be culled.

The problems run deep and are now well known: Far too many shops, rapidly rising staff costs, large business rates bills and customers that now buy a quarter of their clothes online.

It would be easy to dismiss all department stores as relic of a previous era, adherents to a business model ill-adapted to the internet age. But there are some signs that one of the high street’s best-known brands can turn things around.

When one-off charges are taken out, Debenhams still made a full-year trading profit of £33m and it is beginning to implement the changes it needs in order to survive.

The decision to cut so many stores and staff is a painful but necessary one, says Richard Lim, chief executive of consultancy firm Retail Economics.

“Department stores are incredibly expensive to run,” he says, pointing out that almost half of a retailers’ costs are related to labour, making it difficult to compete with online rivals.

By shutting 50 stores, Debenhams is starting to solve one of its biggest problems: It has been locked into a large number of expensive leases. Its average lease has about 20 years to run, with many of them signed during rapid expansion when it was under private equity control between 2003 and 2006.

(Anyone looking at a time horizon beyond the point of personally cashing out in three years would surely have been more prudent – After all, it’s not as if the internet didn’t exist in 2006.)

Getting rid of 50 of those leases removes a huge burden and frees up money to invest in improvements, one of which should be distinctive own brands, says Lim

“Own brands will give them better margins and profitability. They need to stand for something in the market as they currently are getting lost in the middle ground.”

Another positive for Debenhams is the move it has made to give people more reasons to come in and shop.

Today’s consumers, we are often told, want less “stuff” and more experiences. This is one area where the traditional department stores can offer something that Amazon and others can’t.

Last month Debenhams opened its first store with a beauty hall. It occupies 15 per cent of the floorspace and features a mini bar, hair lab, and "beauty club" house. Customers can also take advantage of free personal shopping.

In August Debenhams announced it would open up in-store gyms through a partnership with fitness chain Sweat!

Debenhams closures: High street chain to shut 50 stores around UK, putting 4,000 jobs at risk

It remains to be seen how many people will combine a workout or a makeover with some retail therapy but such strategic tie-ups could be valuable, says Lim. Apart from helping to lure people in, deals with other types of business help department stores make profitable use of the huge amount of space they have.

If clothing isn’t bringing in enough cash, renting out some square footage to other types of businesses makes financial sense, says Lim. He suggests flexible office providers like WeWork or car showrooms as potential partners.

Another area where analysts say Debenhams has room for improvement is integrating its online and offline sales – the “omnichannel offering” in industry jargon.

Chief executive Sergio Bucher, who joined from Amazon, will be fully aware of that need and has the tach know-how to achieve it.

The right technology can transform traditional department stores so that they act as shops, shipment centres and pick-up points for goods ordered online, says Anil Gandharve, head of retail at Mindtree.

“It should not be a battle of high street versus online, so much as it should be about improving integration between the two to provide the best experience for the consumer.”

Another area Debenhams has started investing in is improving its customer service, something that’s “vitally important” because digital-only competitors can’t replicate it, says Laith Khalaf, senior analyst at hargreaves Lansdown.

“Debenhams is also focused on its online offering, which is bearing fruit and growing strongly, albeit not enough to outweigh declines on the high street,” says Khalaf.

While things look look very gloomy right now for Britain’s high streets, there is a big prize available for anyone who finds a business model that works in the new landscape.

“The combination of a strong digital offering with a presence on the UK high street could be a winning combination for any retailer that gets it right, as the physical outlets provide a handy place for customers to collect and return items,” says Khalaf.

For those that don’t perfect that formula, there may be no future at all.

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