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Debenhams boss blames clothing for squeezed margins

Debenhams chief executive Michael Sharp has blamed challenges in the clothing market for the department store chain’s full-year gross margin guidance coming in at the lower end of its previously announced 10 to 40 basis point range.

The retailer’s like-for-like sales increased by 4.8% in the four weeks to January 10, including record sales in the seven days leading up to Christmas. Sales for the week that included Black Friday (November 28) were up by 10.3% and online orders were up by 125% on the day itself.

However, like-for-like sales for the 19 weeks to January 10 fell by 0.8%, which Debenhams said was down to the challenges in the clothing market and its strategy to be less promotional and increase the proportion of full-price sales.

Sharp said it had been well documented that the clothing industry as a whole had a poor season in September, October and early November, so he thought these were “a good set of results in what was a very challenging autumn/winter period”.

Although margins are still expected to be up on the previous year, Sharp explained: “We haven’t sold as much clothing, which has higher margins, but we sold more beauty products, which have lower margins. That combination has brought us to the lower end of the margin guidance for the full year we gave in October. It is still up on the previous year, which is a point worth making.

“We bought prudently as planned, with stock levels 5% lower than last year and significantly lower within clothing. So yes, there has been weakness in the clothing market, but we have managed it very well. It is the breadth of our ranges that gives us the resilience in our model.”

He said the retailer was making “good progress in the right direction” on the five priorities outlined in April 2014, including 10 fewer days on promotion and a 12.1% increase in own-brand full-price sell-through.

In previous years, Debenhams felt it lost out to competitors with a better multichannel offer over Christmas, but Sharp said: “We now have a competitive online proposition with next-day delivery to home and next-day click-and-collect, which customers took full advantage of and which performed well over Christmas.”

Online sales were up by 28.9% for the four weeks against the same period in 2013 and click-and-collect peaked at 39% of total online orders during the final few days before Christmas.

Readers' comments (1)

  • Ted Baker? Reiss? Next? Don't they all do clothing?

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