Debenhams lights up the High Street
THE rise of throwaway fashion does not have to spell the demise of department store chains, as Debenhams has proved. Two years after Rob Templeman took it private for £1.7bn, the retailer is giving the best of the High Street a run for their money.
Underlying profits at Debs rose 49pc to £254m in the year to September, with sales up 2.8pc. Templeman hints that sales have since stepped backwards, but refuses to join his rivals in predicting doom and gloom this Christmas.
‘It’s got tougher, but I think a lot of the weak demand for clothing is weatherrelated rather than due to macro factors,’ he says.
Without claiming to be weatherman Michael Fish, Templeman confidently predicts that ‘a big cold snap is coming’. This should boost sales of coats and jumpers. He adds: ‘ One thing I know about Christmas is that if you’ve got the right product people will buy it.’
Debenhams is certainly a success story. Annual sales have just surpassed £2bn for the first time. This year Debs overtook John Lewis to become Britain’s number- two furniture and clothing retailer – second only to Marks & Spencer. Its market share has climbed from 13.8pc to 18.6pc in five years, whereas Marks’ has dropped from 33.6pc to 29.6pc.
At a time when rivals such as House of Fraser are closing flagship stores in Regent Street and High Street Kensington – and seeing dismal sales – Templeman is planning a major expansion. Debenhams, which has 120 stores, has earmarked 23 department stores
will be tough. Debenhams has to be opened within five years. It is
£1.9bn of debt, which helped fund also pressing ahead with the rollout
its shareholder payout. of its smaller Desire by Debenhams
This is a hefty amount to borrow, chain.
particularly at a time of weak consumer
Private equity backers CVC, spending. Much of the Texas Pacific and Merrill Lynch,
group’s property has been mortgaged, which invested £600m to buy Debs, so it faces high interest and have already taken out £1.2bn in
rent payments. dividends.
Some of Debs’ debt is trading
Talk abounds that the retailer
below face value. This may be due will be floated back on the stock
to the changing bond market, but market in the spring. Analysts
could also signal concerns about value it at around £3bn, including
the group’s financial strength. debt. Templeman insists there are
Templeman says profits are ‘ on ‘no plans for any corporate things,’
target’ so far. ‘We are pretty confident but knows the group will not stay we’ll take more than our private forever.
share this Christmas. We have got
Christmas will be key. If all goes
great products at great prices.’ to plan, a spring float would make
The Designers at Debenhams sense. But the next two months
range is still proving popular, since could be turbulent. Sales are
customers ‘ want that catwalk thought to have turned negative at
look’. And Templeman is a master Debs since September, and if the
at cutting costs. New store openings cold snap fails to materialise life are 40pc less expensive than under the previous regime, and suppliers have been persuaded to wait longer for their cash.
Operating margins have risen to 12.2pc, which Templeman describes as ‘ almost the best for department stores throughout the world’. Rather than relying on third-party concessions Debs buys most of its clothes ranges itself – so does not need to give a slice of the profits to someone else.
Improvements at Marks do not seem to have dented Templeman’s confidence. ‘ Our sales have still been positive,’ he says. However, he warns: ‘ You ignore anyone on the High Street at your peril.’
November is a nail-biting time for most retailers. They are loading up on stock ahead of Christmas, but still waiting for customers. When Templeman says ‘there will be winners and losers’ this is one festive prediction he will not get wrong.