Debenhams chief executive Rob Templeman has warned of a “further dip” in the economy and said the retail sector is ripe for a period of mergers and acquisitions.
Speaking at Drapers’ sister title Retail Week’s annual conference yesterday Templeman said: “The recession will end but growth is anaemic. There is a possibility of a further dip and I don’t think we will ever go back to the dizzy heights of consumers spending what they don’t have.”
He added, drawing on trends from previous recessions: “The timing is almost perfect for M&As. A lot of companies have to refinance, there is a lot of concern about breaching covenants, and interest rates will rise but will remain low.”
He said those companies that need to refinance are “very vulnerable” and reiterated that Debenhams is actively seeking acquisitions. At the end of last year, the department store chain acquired Danish department store chain Magasin du Nord and last month, it relaunched the Principles range - which it acquired following its collapse last year - as part of its Designers At stable of ranges.
He said Debenhams planned for a tough economy from early 2008 with two objectives – “cash margin is king” and “self-help levers”.
“We looked at how we could move the average selling price up, and focused on quality with new ranges in Designers at Debenhams,” he said.
He said that one of the lessons Debenhams learnt is that “the answers are always on the shop floor”.
Templeman said “some of the best and most famous names in retail” collapsed in 2009 including Woolworths, Baugur, MFI and Land of Leather but it is difficult to see if they would have survived if they had seen the recession coming.
“There were signs in the banking market, and also some consumer warnings such as the saving ratio collapsing and household debt peaking,” he said.
He said there are some positives to come out of the recession, including lower property costs, a less competitive market, and a margin management focus will put retailers in better stead. He said retailers should learn to treat credit insurers with respect.
“Credit insurers should be ignored at your peril,” he said. “They need to be treated like banks and you need to regularly communicate with them.”