All change at Debenhams under new CEO
++ THE SHARE HUNTER++ GEORGE SALMON++ HARGREAVES LANSDOWN++
DEBENHAMS’ half- year results were broadly in line with market expectations. However, its new CEO took the opportunity to set out a wide- ranging strategic review.
In the six months to March 4 2017, gross transaction value ( a measure of total sales) rose by 2.9 per cent to £ 1.7billion, driven by a 12 per cent rise in UK online orders, which included a 64 per cent rise in mobile orders. Online now represents 16.8 per cent of group sales. However, operating profit fell due to lower margins and higher costs. Group margins fell as sales in lower- margin beauty, gift and concessions grew. Non- clothing sales now make up 56 per cent of overall sales.
The results also included a strategy update from new CEO Sergio Bucher. As one might expect for someone whose last job was vice- president of Amazon’s European fashion business, harnessing the power of the internet is front and centre of his plans. However, the update on group strategy goes further than clicking refresh on the website.
He also wants to give Debenhams’ high street stores a bit of a facelift. In recent years, many shops have become cluttered and jaded. Debenhams is targeting a more social shopping experience, with the stores shifting from “functional” to customer- friendly “social spaces”. The group is looking at closing a handful of stores, but many are on long- term leases which would likely attract substantial costs to break from.
The plans don’t come cheap. An extra £ 100million in capital expenditure will be needed over the next three years, with exceptional costs of £ 50million.
Another ongoing challenge is to shake off the serial discounter label. The famous “Blue Cross” may be the customer’s friend, but a stream of sales events has hindered profitability. Progress has been made, with markdowns falling for six consecutive seasons, but generating sales growth on the high street is tough enough – never mind when you aren’t giving customers the discounts they are used to.
While Mr Bucher has identified many of the right issues, it’s one thing to diagnose the disease and another to successfully apply the cure. There could still be a long road ahead.