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Debenhams sets out its plans for the future as it slims down its store estate and focuses online

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Debenhams today set out its plans to reshape its store estate and online presence against the backdrop of a ’volatile and challenging’ retail market.

The department store group, a Leading retailer in IRUK Top500 research, reported online growth of 12% ahead of the market in its latest financial year, thanks to an improved mobile and customer experience – but it was forced to write down the value of its stores. It now plans to close up to 50 under-performing stores over the next three to five years – from a store estate of 165 stores. 

The update came as Debenhams reported revenue of £1.8bn in the year to September 1. That’s 3.2% down on the same time last year. Underlying pre-tax profits of £33.2m were 65.1% down on the last time, but exceptional items of £524.7m took the retailer to a bottom-line loss of £491.5m – from a profit of £59m last time. Those exceptional items included £12.3m related to the Debenhams Redesigned transformation strategy, and a £512.4m write-down in the value of stores and goodwill, write-offs of IT systems (to the tune of £80m) and provisions for store leases. The retailer is now reducing its capital expenditure to £70m and making cost savings of at least £30m a year, through store closures and plans for rent reductions. It believes that around 110 of its 165 stores are over-rented, at a cost to it of about £12m and it is now talking to landlords about that issue, “benchmarking against recent changes achieved by some competitors.”

Sergio Bucher, chief executive of Debenhams, said: “It has been a tough year for retail in 2018 and our performance reflects that. We are taking decisive steps to strengthen Debenhams in a market that remains volatile and challenging.” He said there were “tough decisions” to take on stores where financial performance was likely to deteriorate.

“Debenhams remains a strong and trusted brand, with 19m customers shopping with us over the pst year. Our transformation strategy is gaining traction, with positive results from new product and new formats, general acclaim for our store of the future in Watford, and digital growth that is outpacing the market.” 

Here’s what the retailer said about its multichannel strategy, in more detail.

Digital sales

In the future, Debenhams expects digital to account for about 30% of its business, centred around mobile interaction with customers. Currently digital stands at about 20%. Over the year, digital sales grew by 12% – and over the second half alone, they were up by 16%. Demand via mobile devices was 20% ahead of last year, with mobile now accounting for 60% of all demand. something Debenhams puts down to an agile development programme that it said had driven “significant improvements in speed and filtering.” Conversion via smartphones rose by 17%. 

It is now working with Mobify to separate its digital customer experience from the underlying platform “in a way that allows us to drive faster, positive changes.” It will move desktop to the Mobify platform from February 2019. As a result, it says, it will provide “a consistent and scalable experience across all our customer-facing digital channels”.

It is building online ranges to have the “most exciting and authoritative range and the strongest availability.” Online analytics will inform range decisions, based on customer search, and will lead to it introducing the brands and products that its customers are looking for.

It also aims to boost its visibility on key products and brands in local mobile search, and, it says, “We are working with Google to surface local store information alongside visual shopping ads to drive traffic into stores.”

In-store – and across channels

Debenhams opened its new store of the future at Watford last month featuring its beauty hall of the future (see below). It is focusing on a ’service redesigned’ approach, hiring from the hospitality industry in order to improve its customer service.

The retailer aims use its stores to maintain a leading position in the beauty market. Over the last year it opened its Beauty Hall of the Future format in stores at its new Watford store and at a redesigned Meadowhall store. This, it says, is “an innovative, digitally-integrated format with a significant increase in experiential offers and services and Debenhams-owned content.”

It also launched the BeautyClub Community, a social forum of beauty lovers which it says is the first of its kind in the UK. It has 1.3m BeautyClub members, and 0.5m beauty followers on Instagram and Facebook. The community, it says, will “transform our relationship with customers and demonstrate digital leadership in the category.” It has also tested a #beautyhub multi-brand format that allows smaller stores to offer more brands in a tighter footprint and now plans to introduce this to four more stores. 

It is also looking to revitalise its fashion sales in stores, through a new merchandising presentation. This is an approach that will also extend across channels. Its gift range will also be improved and changed, with cross-category merchandising being seen in around 120 stores ahead of peak trading.  

What the analysts say

John Webber, head of business rates at Colliers International, says business rates will certainly play a part in deciding which stores Debenhams will consider closing. Colliers analysed the rates bills of 46 of the hardest-hit Debenhams stores and found that over the next three years they will be paying £6.4 million more in business rates than they should have been, had their rates bills been allowed to reach their true level immediately following the 2017 rating revaluation, rather than transitioning slowly. “It is no wonder Debenhams is looking at shutting up to 50 stores and is trying to reduce its rent bills or cut its store sizes in some areas,” he said. “As business rates are tied to rental values, it would be mad not to.”

Richard Lim, chief executive at Retail Economics said: “Plans to close up to 50 stores reflects the mighty challenge faced by the retailer. They operate in a part of the market under the most intense amount of pressure. Put simply, department stores are incredibly expensive to run. The combination of too much space, inflexible leases and spiralling operating costs are set against a backdrop an accelerating behavioural shift towards online and experiences. This is eroding their profitability and changes in the business need to occur at a pace if they are to survive.

“They will need to push forward right-sizing initiatives and form strategic partnerships with other third parties to sweat assets more effectively, as they attempt to pivot towards a sustainable business model.”

Image courtesy of Debenhams

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