When it comes to retailing, Christmas sorts the pedigree porkers from the runts of the litter. And so the New Year trading updates were nervously awaited: had the festive season's sales made them winners or losers? Rosettes this year to John Lewis, Marks & Spencer and Tesco. Sadly, Debenhams - along with Next, Woolworths and HMV - was a loser. In its January announcement, the department store upset the City by reporting a continuing fall in underlying sales and a decline in gross margin. It experienced a 4% like-for-like sales decrease in the 19 weeks to 13 January. This poor show caused analyst Richard Ratner of Seymour Pierce to cut his full-year profit forecast from £185 million to £177.7 million.
The 132-store chain blamed the sales decline on unseasonably warm weather and the integration of nine recently acquired Irish Roches stores. These outlets rely on lower-margin concession sales. Respected CEO Rob Templeman (ex-Halfords and ex-Homebase) said Debenhams had bettered its previous trading period's sales performance, but admitted that 'the market remains challenging and we are cautious about the out-turn for the rest of this financial year'.
THE STRAIGHT TALK
The reinvigorated M&S and a strong John Lewis are eating into Debenhams' market share. Critics deplore its penchant for discounting. Its regular spectaculars ('megadays') might be putting off the more aspirational customers, nothwithstanding successful and glamorous designer lines by Jasper Conran, Frost French and Betty Jackson et al. Management must not pursue its aim of 'Bond Street quality at high street prices' at the cost of making its brand trashy.
Templeman's team is well thought of, so the City is keen to give it breathing space. The retailer returned to the stock market last May after a lucrative two-and-a-half years as a private firm, and the pressure is now on for it to deliver. Clothes sales, notably womenswear, are seen as critical to the success of the business, yet there is not one female director on its board. Keeping up with its more aspirational competitors is key to Debenham's success at home. Templeman plans to grow the business in part through overseas expansion, opening 70 stores outside the UK by 2010 in markets such as Russia, India, Romania and Malta. Will Debenhams make a success of these forays as well as boosting its presence at home? M&S tried it and failed. It's a hard nut for Debenhams to crack.