You have to feel for Michael Sharp. As Black Friday and the all-important Christmas trading period loom, he is faced with calls for his head to roll over Debenhams’ weak trading.
And it’s hard to argue with the shareholders making those calls: Sharp doesn’t seem to get the extent to which Debenhams’ discounting culture has damaged its image – perhaps irreparably. It certainly seems like time for a change of guard.
Sharp inherited a number of legacy issues when he took over from Rob Templeman as chief executive in 2011. It is difficult to remember a time when Debenhams wasn’t an aggressive discounter. In the years after investors CVC, Merril Lynch and TPG took the company private in 2003, it began introducing more and more small-scale promotions alongside its traditional Spectaculars and Blue Cross events, eroding its margins and rotting the brand. It has also suffered from the market’s embrace of deeper and longer discounting to stimulate sales following the credit crunch in 2008.
A profit warning in March 2013 was followed by another at the end of that year after Debenhams’ promotions failed to attract the volume of shoppers it was expecting in the run-up to Christmas. Sharp was forced to admit the increased intensity of its promotional activity in the run-up to Christmas had “caused confusion” among customers. He has since steered the retailer away from running those smaller promotions, but he maintains that the bigger Sale events are “part of Debenhams’ DNA” and customers like them.
However, the first few months of 2014 proved equally challenging. In April of that year, Sharp outlined four strategic moves designed to put the brakes on the decline. One of these was “delivering a compelling customer proposition”, which included a refocusing of its promotional strategy. Sharp warned change would not be brought about in one season.
Last week I wandered into the refurbished Oxford Street flagship and bought a top from Savannah Miller’s new collection for Debenhams (at full price). I wasn’t bombarded with offers. I had a look online and, here too, there was an absence of red, on the homepage at least. So there are signs of change.
Brands may find Debenhams’ discounting distasteful, but for many the sheer volume of shoppers it attracts – particularly online – makes it an irresistible partner. One brand stocked on its website tells me they wouldn’t have gone near Debenhams five years ago, but they couldn’t argue with the numbers. Debenhams.com had 276m visits in 2014.
The problem for Sharp is that, while Debenhams has reduced the breadth of the promotions and put less stock in its Sales, to the consumer it still looks like it is discounting heavily. Many customers love this, but others are increasingly put off. And of course a high volume of traffic in stores or online does not necessarily translate into profits. Sharp doesn’t seem to understand the urgent need to address this, and now the City is running out of patience.
In a crowded market, Debenhams has lost its USP, while its competitors have been gaining ground. Like its large rival Marks & Spencer, it is struggling to find a place among more relevant competitors, including John Lewis, House of Fraser, Selfridges, Next and Amazon. It needs the discipline to stop discounting, to decide where it wants to sit in the market and act accordingly. Whatever the decision, a change in management can only do it good.