With plans to double its overseas store portfolio and franchising and licensing deals mooted, Debenhams’ international director might just be about to take over the world.
As he begins to discuss Debenhams’ global expansion plans, international director Francis McAuley asks: “How long have we got, because I could talk for days on this?”
His enthusiasm is palpable, and the office walls are testament to his dedication, featuring huge framed photos of Debenhams’ international stores. There is also an impressive map of the world that’s peppered with pins indicating the department store chain’s worldwide presence, towards which McAuley regularly gestures.
“I take great heart that we’re talking about Debenhams being an international, multichannel retailer,” he says. “We don’t have to make that first step of how do we get there – we’re there. All we have to do is get better.”
Debenhams’ international plans form a large part of its ongoing strategy, and McAuley humbly speaks of his pride that across each sheet of its latest financial results presentation is emblazoned ‘A leading international, multichannel retailer’. “It’s an exciting time, because we’ve all the foundations in place, we’ve got the ecommerce doing extremely well and the UK business is growing,” he adds.
McAuley has been fundamental in laying these foundations. When he joined back in 1999, the retailer had just two stores outside the UK. Now, 12 years later, it boasts an overseas portfolio of 65 stores.
This growth is set to continue, and over the next five years McAuley hopes to rapidly expand the international business from 65 stores to 130. “I’d be very disappointed if in five years we weren’t double the size in terms of store numbers and turnover,” he says.
With stores in 25 countries including Iran, the Philippines, Cyprus and Malta, Debenhams is looking to branch out further afield and has several phases of expansion planned. Key markets that have been pinpointed include Russia, China, India and Turkey. It already has one store in India, but will soon open a further three, and McAuley hopes to increase that number into double figures.
He exclusively reveals to Drapers that in autumn 2012, Debenhams will open its first Russian store in Moscow. It plans to open eight stores in Russia over the next five years, but McAuley adds: “I’d be disappointed if we didn’t double that and maybe more.”
A key reason why Russia is a strong focus for growth is because tourists from the country are in the top five biggest-spending nationalities in Debenhams’ UK stores. Chinese and Nigerian nationals are also in the top five, but when questioned on whether the retailer has any stores in Nigeria, McAuley replies “not yet”, before shuffling his papers with an awkward laugh. “It’s not in this stage of expansion but probably the second one.”
Also included in this second stage is South America, although details are scant at this early phase. “We’ve had a number of trips and a number of meetings, which have gone well,” he says. Alongside Colombia and Chile, Brazil has been a prime area of focus for international expansion, but import duties of between 50% to 80% have been, as McAuley puts it, a “hiccup”. But the retailer still plans to plough ahead regardless with ambitions to launch in Brazil by 2013.
He says Debenhams may have to adapt its model to move into the South American market. Despite proving the franchise model works, McAuley says that in the southern hemisphere the retailer could explore a mixture of franchising and licensing. No deals have been signed, though.
He believes Debenhams has two main strengths that aid its international growth. “We own 50% of the brands. Nobody else can sell them.” As international store sizes are about half the average size of UK stores (40,000 sq ft to 45,000 sq ft compared with 85,000 sq ft), overseas outlets can solely stock Debenhams’ own brands. “It’s new to the market and there’s no other department store in the world I’m aware of that can do that.”
He adds: “Another strength is our trading ability. Debenhams is very good at promotional activity, and I know we get slated for it sometimes, but it’s seen as a strength by our partners, as by doing that we manage the markdown.”
Whether in Bath, Budapest or Bahrain, Debenhams stores have the same branding, layout and look. Products in its international stores echo an edited selection of the UK stock, depending on the market, culture and climate. Its international arm is becoming increasingly important to Debenhams’ bottom line and in the latest results for the year to September 3, international sales were up 16.5% to £77m.
“Internationally we’ve had a good couple of years,” says McAuley. “There are some markets that have come out of [the recession] much swifter than Europe and those markets are the oil markets. The Middle East is doing particularly well, and Cyprus is starting to come out of it again, which is a good sign for Europe, I think.”
He admits that trading conditions in central Europe are tough, particularly in Hungary, Romania and the Czech Republic. However, McAuley and his team of 54 strive to work with franchise partners to ease the pressures and have taken measures including cutting stock levels and upping promotions to control costs. “You’ve got to fight your way through it,” he says.
But there are signs of improvement, he adds. “The only issue we’ve got is the confidence in Europe at the minute.” Plagued by financial troubles in eurozone countries, the European economy remains fragile.
With so many UK retailers putting international growth at the top of their agendas, could this mean the UK economy is offering no signs of growth? McAuley thinks not. “The key thing about international expansion is you should not even consider it unless you have the firm footing and basis in the UK, because all you’ll do is distract your core business.”
Further acquisitions could also be on the table, although he is reticent to discuss the subject. He says Danish department store business Magasin du Nord, which was acquired for £12.3m in November 2009, has been extremely successful and so Debenhams would be “daft” not to look at similar opportunities, yet he will not disclose any details. “When you’re hunting for a girlfriend you don’t know what you’re looking for until you find her,” he says, with a laugh.
2010 Non-executive director, Ermes Group, Cyprus
1999-present International director, Debenhams
1998 International director, Sears Clothing
1996 Managing director, Adams Childrenswear, Spain
1993 Retail director, Hush Puppies