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Debenhams tightens promotional strategy as first half profits plummet

Debenhams has said it will refocus its strategy around discounting, with fewer days on Sale, after group profits plummeted 24.5% to £85.2m in the first half of its financial year.

The results for the 26 weeks to March 1, which are in line with the revised guidance published on December 31, showed  UK sales had grown 1% to £1.27bn while international rose 6.8% to nearly £300m, with total sales up 2.1% to £1.57bn. Group online GTV rocketed 24.1%.

However gross margins fell 100 basis points and pre-tax profits fell nearly a quarter to £85.2m. UK EBITDA fell 17.4% to £116m.

Debenhams said the “challenging and competitive” first half meant clothing sales were below expectations as a result of higher targets “based on a strong performance last year”. Discounting throughout the retail sector “was more intense than last year, particularly in December, which diluted the impact of our promotions”, the company added. As a result it is planning fewer, more targeted Sales in future.

“Promotions are a traditional strength of Debenhams but in the run up to Christmas their impact was diluted by the highly promotional trading environment in the UK,” the statement said.  “We are therefore refocusing our promotional strategy which will see more clearly defined promotional periods in the trading calendar with fewer days on promotion.” 

Debenhams also lost out to competitors with “better developed multi-channel models”.

During the period, the company trialled free standard delivery, but discovered the “negative impact on sales was unsustainable”, so the charge was reinstated. However the company plans to introduce “premium” delivery options in the coming months, including next day click-and-collect.

Chief executive Michael Sharp said: “While this has been a challenging first half, we are clear on the issues and are taking decisive action to address them.  In particular we are focused on building a more competitive multi-channel offer for our customers and improving the operational effectiveness of the overall business.

“The Debenhams brand remains strong with sales continuing to grow and a resilient market share performance.   Whilst we remain cautious about the strength of the UK consumer recovery, I am confident the changes we are putting in place will provide a better customer experience and, over time, stronger results for our shareholders.”

It was not all bad for the 158-strong department store chain, though, which completed the refurbishment of its Oxford Street branch in February. “The performance of the store since completion has been encouraging,” the company statement said.

Two new stores opened in Leamington Spa and Haverfordwest in October 2013, adding 60,000 sq ft of space.  The new store pipeline stands at 14 stores which will collectively add around 8.5% of new space over the next four years.  It includes Cheshire Oaks and Hereford which are both expected to open in the second half of this year. 

The total number of international stores stood at 82 at the end of the first half, up from 79 the same time last year, which includes 65 franchise stores and 17 owned stores across 27 countries. 

Four new franchise stores opened during the first half including market entry in Estonia and Libya as well as additional stores in Malaysia and Saudi Arabia, while one store closed in Vietnam.

One new store has opened since the end of the half and three more are scheduled to open in the remainder of the year, including Debenhams’ first store in Latvia.  The contracted pipeline for the following two years stands at 21 stores.

Readers' comments (2)

  • Debenhams are badly managed, stuck in the past and brands are (behind closed doors) increasingly reluctant to deal with them as they can ruin a brands image with their never ending discounting coupled with comedy payment terms.

    If Debenhams continue to go down the path they have created for themselves, they won't be here in a decades time and won't be missed.

    It's in their hands.

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  • I cannot comment on payment terms, however businesses who do not support their supply chain invariably come unstuck.

    I can comment on their engagement with customers...

    They do have some great people on the shop floor, but they don't appear to be getting the necessary training. Store management only appear focussed on delivering head office plans, so opportunities are lost daily and ideas stifled. Not very motivating if head office plans are failing.

    Worst thing is that their marketing endeavour although PR friendly, is very 'gimmicky', often lacking substance (and in some instances, lacking accuracy).

    When it doesn't all join up, the customer has an experience well below expectations. So it's no wonder concessions are less likely to invest. No doubt to the benefit of JL, HoF and others.

    I think it will get worse before it gets better.

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