Debenhams, Zara and ASOS on top while French Connection is simply de trop

MT takes a look at the latest winners and losers in UK fashion retailing.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
While bosses of high street retailers across the land bemoan the state of the economy, blame the Olympics for falling sales, and shave their margins wafer-thin to shift stock, department store Debenhams has been quietly raking it in. Shrugging off recent doom-laden statements from Next and Burberry, chief executive Michael Sharp sounds almost sheepish when he says, ‘There is no sign of a slowdown at all, and in fact, August trading for us was very strong.’

Over the year to September 1, like-for-like sales (the most painful sales barometer for most retailers right now) across the Debenhams chain have grown 1.6%, with growth up 3.7% in the last 10 weeks. This far outstrips the 2.1% predicted by analysts, and full-year pre-tax profits are set to come in, on target, at around £158m.

Sharp credits Debenhams’ beauty range and the breadth of its product offering for protecting the business against the ravages of recession. ‘If the sun’s shining or it’s raining we have more tunes to play across the product range than many other retailers,’ he explains. Indeed, so confident is Sharp of the business’ sure financial footing that Debenhams is in the midst of an investment splurge: all 167 stores are getting revamped and the website is having a full overhaul.

Debenhams’ Oxford Street comrade Zara has also had a blistering summer, with profits up 32% in the first half. Owner Inditex made a net profit of €944m from the 5,693-store strong chain on net sales of 7.2bn. This includes sales from the 166 new shops opened over the last six months. Looking at the all-revealing like-for-likes, Zara is still going gangbusters, up 7% on the same period last year.

Not even the economic crisis in its Spanish motherland can hamper Zara’s growth. In fact, the retailer has invested €450m in its logistics and commercial operations to facilitate further growth across Spain. Like Debenhams, Zara is also throwing money at its online offering, and predicts further sales growth as a result in the second half.

If you need proof that e-tail is the way forward for fashion brands, look no further than ASOS. The online store has smashed all market expectations, notching up 15% revenue growth in the last quarter. According to CEO Nick Robertson, ASOS now boasts over five million active customers (up from 3.7 million last year), who spent £50m in the last three months alone.

International sales at the brand, so beloved of the likes of Fearne Cotton, Rihanna and Kate Hudson, grew 42% across the quarter. And while this has been primarily driven by orders from the States, the eurozone business is flourishing too – especially ASOS’ new sites in ltaly and Spain. Total group sales for the year to the end of August are up 38% on 2011, topping £537.9m.

However, one fashion retailer who is not basking in the rays of a European summer is French Connection. The brand has reported a half-year loss of £6.3m for the six months to 31 July, down from a modest £700,000 profit last year. Unlike Zara and ASOS, French Connection has had real trouble shifting its wares in Europe, with sales in UK and across the Channel down 9.5%.

‘The last six months have continued to be very difficult,’ admits chairman and chief executive Stephen Marks. Cue a 15% drop in French Connection’s share price… Not that the markets can have been too surprised: the brand has issued three profit warnings in the past year. However, Marks insists that a new plan to offload loss-making stores, revamp the product range, and soup up in-store operations will turn the business around. However, a recovery will not come around any time soon. As a statement from French Connection baldly states: ‘The route to sustained recovery is likely to take some time.’

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today