Debenhams chief executive Sergio Bucher has admitted the retailer’s clothing offer was “wasn’t good enough” in its first half, resulting in a drop in sales and profits.
Profit before tax nosedived 84.6% year on year in the 26 weeks to 3 March, to £13.5m. Sales also dipped as group gross transaction value fell 1.6% to £1.7bn, while like-for-like sales fell 2.2%.
Bucher said although the market was “very volatile” the business takes responsibility for the lacklustre performance: “Our product hasn’t been exciting enough. We were too much on the back foot with our product.
“We need to be more dynamic. We will be exiting some brands, shrinking others and bringing in others. We need fewer products. We need the design to be sharper and we need to own the brands that we have.”
Bucher said the business was not seeking to become more premium in its fashion offer – a silk dress from Studio by Preen’s new Designers at Debenhams collection is £200 – but the shopping experience would be more elevated going forward.
“We’re not trying to be more premium, but to have a more premium presentation. It needs to be great value for money, but that doesn’t mean cheap. We need to encourage our current shoppers to shop with us more often.”
New managing director for fashion and home Stephen Cooke said the business was studying its customer to improve its fashion offer: “The way we attack our key categories is important. We’re studying our prices, customer, what they are buying – and what they aren’t – to see how we can maximise the opportunity. There is room to grow our market share.
“The womenswear market is lethargic and there is a lot of mediocrity out there. We need to not be mediocre – we need to rise above it. we need to focus on the best product at the best price point.”
The business said an increase in competitor discounting over Christmas, led to higher clearance from the retailer of seasonal stock and a group gross margin decline of 160 bps.
Digital sales were up 9.7%, however, driven by strong growth in mobile and improved conversion rates.
Bucher said the pace of change in retail had accelerated and the business must step up its rate of change as a result.
Debenhams is focusing on five priority actions to mitigate the fast-changing market conditions and drive progress in the full year. These are: delivering above-market digital sales growth driven by technological change focused on mobile; sustaining leadership in beauty through innovative customer engagement both in store and online; revitalising fashion product under new leadership, as part of which the Designers at Debenhams refresh is under way; changing in-store experience for customers through a redesigned service model and store presentation; and accelerating cost-reduction activity to underpin additional annualised savings of £20m identified in January 2018.
Debenhams said it has seen “encouraging results” from new store format trials, which include a slimmed-down footprint and restaurant concessions. It plans to roll this out to 35% of its UK store sales base.
Two stores closed in January and a further eight have been earmarked for potential closure should they become loss making. In addition, 25 shops are up for rent renegotiations with landlords and 30 stores may downsize.
The retailer also plans to grow its beauty business, creating an integrated digital environment. A new beauty hall concept will launch in the autumn featuring an interactive digital technology, improved customer service and more brands.
Despite the challenging market, Bucher is confident the retailer can return to growth in 2019: “I think that we have always been clear that 2018 is a transition year. But I’m excited by the signs of progress we are seeing. The five action points that we have really focused on are actions that we’ll scale within the next 12 months, so it is our intention to see a progression in our performance during the year to 2019.”