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Calls for strategy rethink at Debenhams

Debenhams is still too reliant on discounting and needs a “radical” change of strategy, analysts have said following reports of unrest among the retailer’s shareholders.

City stockbroker Cenkos Securities is said to be gauging interest among shareholders to oust Debenhams chief executive Michael Sharp and chairman Nigel Northridge following a long period of weak trading.

Analysts told Drapers a fresh management team could be welcome as Debenhams needs a change in strategy, but warned it would be counterproductive to stage a boardroom coup before Christmas.

One analyst said: “I can see why there may be unrest; the business is still way too reliant on discounting. Profits are under pressure and the share price has gone nowhere since Sharp took over as CEO four years ago.”

He suggested that former general merchandise chief at Marks & Spencer John Dixon could be in the running for Sharp’s job.

Kate Calvert, retail analyst at Investec, said: “Pressure is definitely on management given profits been in decline for years at EBIT level. Management need to prove they can sustainably grow profits this autumn/winter.”

Anusha Couttigane, fashion consultant at retail research firm Conlumino, agreed: “The management says they are discounting less, but every time you go into a Debenhams store you are bombarded with red promotion signs.”

But she added: “It’s a bad idea to destabilise the business in the run up to Christmas, it’s an important time in any retailer’s calendar. Christmas will be telling. If I was a shareholder I would make my decision on whether the leadership was up to scratch based on that.”

“This is obviously very unsettling for current management, and weakens their authority, which could make a coup easier,” said another retail analyst. “But then whoever takes over will face the same challenges, and even if they have a radical change of strategy it will take time to deliver, so shareholders are not likely to benefit for some time.”

Debenhams’ like-for-like sales rose 1% in the year to August 30, 2014, but its underlying pre-tax profits fell 21% to £110.3m. In January it warned its full year gross margin would come in at lower end of expectations. Sales in the 15 weeks to June 13 were flat.

Debenhams shares, which started at 200p when it listed on the London Stock Exchange for the second time in May 2006, have since fallen to 75p.

Debenhams declined to comment and Cenkos did not respond.

Readers' comments (2)

  • Once you start discounting on a regular basis there is no way back. People now only shop there if its cheap and some brands - privately at least - don't like being in there because of its 'discount image'. It's a path that the store has taken, but the wrong one.

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  • Think they know the problem but question is can they change their attitude to panic and discounting, Ithink the problem is not too bad!

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