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The risks and rewards that lie ahead for department stores

The UK’s biggest department stores are facing change at the top. Drapers looks at what the new chief executives of John Lewis, House of Fraser and Debenhams will have to deal with in 2017. 

johnlewis oxfordstreet

John Lewis on Oxford Street

It is all change at the top of department stores. In the latest in a series of moves, House of Fraser boss Nigel Oddy announced his intentions to leave once a new chief executive has been found, following rumoured tensionsat the retailer under Chinese owner Sanpower. In January, John Lewis “lifer” Paula Nickolds will take over the managing director role, replacing Andy Street. Meanwhile, over at Debenhams, Sergio Bucher is settling into the top job after joining from Amazon Fashion in May.

Elsewhere, Ed Burstell has left Liberty of London after managing the iconic department store for eight years and David Walker-Smith resigned as managing director of Fenwick. Industry stalwart and Harrods boss Michael Ward seems to be the only stable point in a sea of people moves, having decided to stay on at the business “for the foreseeable future” after previously announcing he would leave.

But will the changes mark the beginnings of a new era for department stores, which are facing the challenges of online, off-price and outlets? Nickolds, Bucher and Nigel Oddy’s as-yet-unnamed successor could help to rejuvenate the sector – but it will not be an easy task. Drapers weighs up their choices.

House of Fraser

Strengths

Driving a multichannel mindset has been key for Oddy during his time at HoF and his focus seems to have paid off. Ecommerce sales have been on the rise, up 17.8% year on year for the 26 weeks to July 30. A new website, which will allow HoF to present a localised offer for different markets, has been in the offing for some time and is now expected to go live in early 2017. The department store reported its first pre-tax profit in 10 years in April, and is pushing forward with plans for Chinese expansion – the first store in the country is scheduled to open in Nanjing this month.

A programme of store refurbishments is ongoing and the retailer is also refreshing its brand portfolio, adding AllSaints, Monsoon, Mulberry and Kate Spade New York.

Weaknesses

There are significant challenges facing whoever becomes the new HoF chief executive, warns independent retail analyst Richard Hyman: “One of the challenges is that House of Fraser sees itself as an alternative to Selfridges and it isn’t. It’s going to be increasingly difficult to make money selling other people’s brands. The main thing Oddy’s successor will have to do is survive.”

Oddy’s announcement follows recent departures from HoF, leading to concerns over boardroom tensions. Chief customer officer Andy Harding and global multichannel director Martin Francis both left earlier this year and Ray Kavanagh, executive director for supply chain and strategic implementation, is also said to be at risk of redundancy.

Hyman adds that underinvestment has affected Hof’s store portfolio: “It has a large tail of stores that need to be shut, and in fact some of them needed to be shut 25 years ago. On a recent Drapers visit to its Oxford Street flagship, the store was noticeably more cluttered and difficult to navigate than John Lewis’s sleeker counterpart, resulting in a less enjoyable shopping experience for customers.

Finally, a poor performance across its womenswear department has led to four house brands being axed in September. Womenswear will continue to be a cause for concern in 2017.

Debenhams

Strengths

Bucher has never held a chief executive position before, so his appointment was something of a curveball. However, it has been broadly welcomed by the industry. With strong digital credentials from his time at Amazon, Bucher seems well placed to bring a fresh and modern perspective to Debenhams. He is expected to lay out his plans for the retailer in the spring.

In the meantime, the retailer has sensibly kept busy by diversifying away from clothing with a revamped gift and beauty offer, bringing cult US make-up brand Kat Von D exclusively to the UK. The move certainly generated a buzz, with a product selling every six minutes on the day it launched. Nicky Kinnaird, founder of beauty retailer Space NK, joined the Debenhams board last month, further signalling its intentions to lead the way in beauty. Debenhams is also exploring new avenues for growth by selling house brands on third party websites both in the UK and internationally – Butterfly by Matthew Williamson and H by Henry Holland are now available on Asos.

Weaknesses

Debenhams’ figures have failed to set the world on fire: group like-for-like sales crept up by 0.7% in the 53 weeks to 3 September 2016. Heavy discounting is another challenge, although Debenhams, like Marks & Spencer, has made an effort to cut down on the number of days it is on Sale. In October, it said the sales mix between markdowns and full price had continued to improve, but rising costs and increasing competition on the high street continue to pose problems for retailers across the board. And for all Bucher’s ability, running a department store is a very new proposition for him.

John Lewis

Strengths

There is no doubt that John Lewis enjoys an unusually good brand perception with UK consumers. The nation’s favourite retailer has worked hard to develop a seamless multichannel offer, investing hundreds of millions at its Magna Park distribution centre and achieving record Black Friday sales this year. A third of sales now take place online and John Lewis is working towards its self-imposed ambition of moving half its sales online by 2020. The retailer is also prepared to move with the times in a bid to bring some theatre in store. A range of new services are on offer at recently opened stores in Chelmsford and Leeds’ Victoria Gate shopping centre, including holiday booking, Prosecco bars and, somewhat controversially, waxing.

Weaknesses

The nation’s fondness for John Lewis does not mean Nickolds’ job is without its challenges. Future-proofing the business against what the retailer has described as “deep structural” changes in the retail market has hit pre-tax profit, which fell 14.7% to £81.9m during the six months to 30 July 2016. Nickolds will also have to battle with rising prices – former managing director Andy Street warned of “relatively modest” price increases by the middle of next year as John Lewis unwinds its hedging.

The new boss will also have to continue to get consumers excited about its fashion offer, building on its Modern Rarity womenswear range and collaboration with menswear blogger Jim Chapman.

 

 

 

 

 

 

 

 

 

 

 

Readers' comments (1)

  • The challenge is going to be a good one, if what's happening to US dept stores is anything to go by.

    My money is on new blood. With guidance from the like of Sir Ian Cheshire.

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