With reduced credit insurance, a falling share price and questions over its concession relationships, Drapers asks industry insiders what struggling department store chain Debenhams needs to focus on to secure its future in the market.
Debenhams’ share price has toppled from 50.5p on 23 August 2017 to 12.25p today (23 July). The retailer was forced to hit back at speculation that its relationship with beauty concession Blow, which Debenhams has a 20% stake in, has deteriorated. It follows a reduction in cover from credit insurers for suppliers earlier this month.
Debenhams has issued three profit warnings so far in 2018. In June the retailer announced that like-for-like sales were down 1.7% for the 15 weeks to 16 June, and by 2.1% for the 41 weeks to the same date.
Several suppliers and industry experts have told Drapers the business needs to rein in discounting, concentrate on product and execute a clear strategy to get back on track.
“It needs to hold firm and not discount products it feels strongly about. Otherwise, the consumer will never buy at full price,” says Sofie Willmott, retail analyst at GlobalData. “Product is what Debenhams needs to concentrate on. It has been giving more focus to more fashionable collections such as Studio by Preen, and Richard Quinn, [which is working].”
One Debenhams supplier agreed: “Debenhams will be fine in my opinion. However, it needs to think carefully about what has worked and keep its eye on product. It is product that is key.”
The reduction of credit insurance at the retailer could be a sign of worse to come, says retail analyst Richard Hyman: “Credit insurance is a key indicator of trading pressure. Usually, credit insurers receive trading numbers from the retailer, beyond what is in the public domain.
“Reducing credit insurance suggests the insurers have seen a deterioration in trading. Otherwise, why else would they reduce cover?”
Debenhams has been looking to improve profitability and has accelerated cost-reduction activity to underpin additional annualised savings of £20m identified in January 2018. It is also changing in-store experience for customers through a redesigned service model and store presentation.
However, Willmott believes many initiatives have missed the mark: “Putting gyms or Wework, [the flexible office space provider] in stores is confusing – it looks [akin to] a desperate strategy to fill space. It contrasts with what John Lewis is doing, which is taking a holistic view of its stores, and creating a destination appeal to show shoppers why they need to go back to department stores.”
The Drapers verdict
Debenhams needs to ditch its discounting habit – and fast. The reputation of the brand is suffering. Its stores need a strong, distinct appeal to boost footfall and bring like-for-likes back into positive territory, which is key to stemming the cycle of profit warnings. If the business can stay cash positive, its share price pressure may ease as investors gain faith in the business fundamentals. However, reassuring the City that it is still a safe bet is something Debenhams could certainly work on before its next set of results.