Debenhams shake-up after sharp fall in profits

Debenhams is to refocus its promotional strategy after a disastrous Christmas trading performance led to a sharp fall in half-year profits

Debenhams
Debenhams

Debenhams is to refocus its promotional strategy after a disastrous Christmas trading performance led to a sharp fall in half-year profits.

The department store chain, which has 158 outlets in the UK, will also look to speed up delivery times in its online operation and said it is in discussions to introduce a number of “well-known” brands into its shops.

The moves, outlined by chief executive Michael Sharp, follow a “challenging” period in which profits fell 24.5% to £85.2m in the 26 weeks to March 1.

Debenhams alerted the City to the slide in profits on New Year’s Eve after weak trading in September and October and poor sales in clothing was compounded by a difficult festive period as rivals engaged in a price war.

The company said: “Promotions are a traditional strength of Debenhams but in the run-up to Christmas their impact was diluted by the highly promotional trading environment in the UK.

“We are therefore refocusing our promotional strategy which will see more clearly defined promotional periods in the trading calendar with fewer days on promotion.”

Debenhams said it also trailed behind its rivals in terms of convenience because it lacked a competitive range of premium delivery options.

It has pledged to improve in this area in time for Christmas, with next-day click and collect and a 10pm cut-off for next-day delivery. This has required a step-up in spending on automation in its distribution centres.

The company, which opened new stores at Leamington Spa and Haverfordwest in October last year, said analysis of all of its shops found that 10% of its UK store space was currently under-performing.

It said: “We continue to work on a number of routes to improve sales densities. These include adding more choice of products, brands and services.

“We are currently in discussions with a number of well-known brands, some of which are expected to be trialled over the next six months.”

Debenhams said its current store pipeline stood at 14, which will add 8.5% of space over the next four years. It includes shops at Cheshire Oaks and Hereford, which are both expected to open in the current half year.

The new stores will be sized and configured to take account of multi-channel retailing. Debenhams said there was a significant increase in demand for click and collect services in the last half year, accounting for 24% of online orders compared to just 7% for the same period a year earlier.

Shares rose 6%, despite analysts at Investec and Cantor Fitzgerald retaining their sell ratings on the stock due to fears that the retailer’s middle-market position will make it harder to escape pressure from discounters.

Liz Faulkner, a retail consultant Conlumino, added: “In a highly competitive marketplace with multichannel behemoths like John Lewis and Next, Debenhams’ market will remain challenging.’’

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