Debenhams was the latest high street retailer hand in its Christmas report card today, and its marks were less than stellar. For its stores open over a year, sales for the 17 weeks to December 30 fell by 2.6%, sending its share price tumbling by up to 21% this morning as it admitted it had been performing ‘below expectations’ in its post-Christmas sale. Worse yet for the department store, rival John Lewis reported a record 8.9% rise in sales over the festive season.
The writing is not yet on the wall yet for Debenhams. Every one of its 178 UK stores are profitable, and there’s still a way to go before alarm bells really start to ring. This news will however increase the pressure on CEO Sergio Bucher after only his first calendar year in charge.
‘The market has been challenging and particularly promotional in some of our key seasonal categories and we have responded in order to remain competitive for our customers, which has impacted our profit performance,’ said Bucher.
The company was forced to slash prices to keep up with an aggressive high street battling the two-headed beast of online outlets and decreased consumer spending. Its reliance on promotions to bring in customers proved to be a failed gambit, with its gift products failing to stand out from the crowd for a lack of being both innovative and premium.
Bucher was brought on in October 2016 to the surprise of many in and outside the company, joining from Amazon, where he was VP of European fashion. The appointment was seen as recognition that Debenham’s digital strategy needed an upgrade - only 15% of its sales were digital, compared to 35% at John Lewis.
Bucher announced his (unsurprisingly) digital-first strategy ‘Debenhams redesigned’ in April. Ten stores would be targeted for closure and most importantly, it would create three new units: fashion and home; beauty and beauty services; and food and events to renovate their on-the-ground presence.
After polling 16,000 shoppers last year, Bucher found that Debenhams stores were in need of a makeover, with many branches looking ‘tired’, and making it a ‘treasure hunt’ for customers to find what they were after. His focus on Debenhams as a ‘social shop’ and part of a ‘fun leisure activity’ intertwined with a strong online focus sounded both ambitious and expensive.
Despite the recent poor trading, there are signs that the redesigned strategy seems to be working, sort of. Sales in beauty and food increased, and its market share in clothing remains roughly the same (but the size of the clothing market shrunk thanks to a warm winter).
‘The market dynamics we have seen have reinforced our view that we need to move even faster to implement the cultural and organisational changes needed to ensure Debenhams is in the best possible shape for today’s fast-changing retail environment,’ said Bucher.
Given that the company aims to save £10m over the coming year, it would not be surprising if the profit warning (which slashed expectations from £83m to between £55-65m) led to some heavier cost-cutting. It’s an unenviable challenge facing the CEO, as he attempts to juggle reinvention with resource management.
Image credit: Karen Roe/Flickr