Under-developed multichannel retailing meant that Debenhams missed out when customer thirst for convenience came to the fore this Christmas, the department store said this week.
Explaining flat sales and a 24.5% fall in profits in the first half of its financial year, the company said it had suffered in the face of muted demand for clothing and deeper discounting over Christmas. But it detected a more long-term cause of falling sales too. “Convenience became a much more important driver of customer behaviour in the crucial pre-Christmas period than in previous years,” the Debenhams statement said. “This favoured retailers with better-developed multichannel models than Debenhams.”
Next-day home delivery, for example, was launched in September 2013 but started to see traction only just before Christmas. The company also trialled free standard delivery, but decided not to proceed because of an “unsustainable” negative impact on sales. Appetite for its click and collect service increased, with 24% of online orders collected in store in the first half, up from 7% at the same time in the previous year.
Nonetheless its online sales growth far outpaced that of its overall sales. Debenhams said this week that in the half-year to March 1, group revenue rose to £1.3bn, 1.7% up on the same time last year. International sales were up by 8.7% to £224.4m, while UK sales rose by 0.4% to £1.1bn. Online gross transaction values (GTV) rose by 24.1% and at the end of the full year accounted for 15.4% of total GTV. International online sales increased by 56% from a small base.
Analysis showed that UK stores saw their contribution to sales fall by 2.4%, while online’s contribution grew by 2.8%, and international by 1.1%.
Pre-tax profits, however, fell by 24.5% to £85.2m, from £112.8m last time.
“Whilst this has been a challenging first half,” said Michael Sharp , chief executive of Debenhams, “we are clear on the issues and are taking decisive action to address them. In particular we are focused on building a more competitive multichannel offer for our customers and improving the operational effectiveness of the overall business.
“Whilst we remain cautious about the strength of the UK consumer recovery, I am confident the changes we are putting in place will provide a better customer experience and, over time, stronger results for our shareholders.”
The company said its plans to open 14 new stores to its UK estate of 158 over the next four years would reflect the need for multichannel service. “New stores are sized and configured to take account of the changing role of the store in a multichannel world,” it said. Debenhams says store sales are declining as part of the shift towards online, and is looking at improving that through measures such as a wider choice of products and brands. Click and collect store space will also double, both front-of-house and in stockrooms.
Other steps towards an improved multichannel service, it said, would include more competitive delivery options. Those will include taking the cut-off for next-day delivery orders to 10pm, from 2pm currently, and introducing nominated day delivery. The company is also working to reduce the cost per unit of fulfillment, particularly for click and collect, introducing measures such as increased automation in distribution centres.
Debenhams also continues to invest in its fastest-growing channel, mobile commerce. It cites IMRG-Experian Hitwise figures showing that Debenhams is the 11th biggest online retailer by traffic volume, and the sixth most-visited mobile retail site.
It also said it would rein back on promotions, offering discounts in better-defined time periods. International expansion will also remain a key pillar of its strategy, both online and through stores.
