SHARES in department store Debenhams slumped nearly 20 per cent in early trading yesterday as it issued its third profit warning this year, with chief executive Sergio Bucher pointing to “exceptionally difficult times” on the UK high street.
The retailer, which warned on profits in January following a disappointing Christmas trading period, said it expects pre-tax profits for the full year to come in between £35 million and £40m, well below City forecasts of £50.3m.
Like-for-like sales grew by 1.7% in the 15 weeks to June 16. Clothing struggled and beauty declined in a competitive, promotions-driven market. However, digital sales delivered above-market sales growth at 16%, driven improvements to technology and the appointment last month of a new head of digital.
Debenhams said a programme to make cost savings of £20m was on track, with a new, leaner operating model designed to unlock further opportunity to drive efficiencies in the future. The launch of a new multi-brand format trial “will significantly broaden our brand offer in smaller stores”, it said, and “we have a number of exciting developments that will start to roll out in September”.
The retailer, which has 16 stores in Scotland, said it is seeing “positive early results” from a revitalised fashion offer under new leadership with a new collections including Studio by Preen, targeted at women over 40, and award-winning designer Richard Quinn.
Mr Bucher, a former Amazon executive, said: “It is well-documented that these are exceptionally difficult times in UK retail, and our trading performance in this quarter reflects that. We don’t see these conditions changing in the near future and, because it is our priority to maintain a robust balance sheet, we are making very careful choices about how we deploy capital.
“We see clear evidence of progress as our digital growth outperforms the market and customers respond positively to our product improvements and format trials. We have also put in place a leaner operational structure and made a number of important hires so that we are well-equipped to navigate the market turbulence.”
Shares in Debenhams have lost more than half their value since the start of year during which a raft of British household names have gone out of business or announced plans to close stores as they suffer from growing online competition and subdued consumer spending.
House of Fraser plans to shut around half of its shops and is seeking a company voluntary arrangement (CVA), a complex insolvency procedure, which is increasingly being used by restaurateurs and retailers to shed loss-making sites – to allow it to restructure its store portfolio.
At Brewin Dolphin Edinburgh, senior investment analyst John Moore highlighted soaring business rates as one of the problems. “Debenhams is just the latest in a series of retailers which have reported troubles in the past few weeks – more are likely to follow in the months ahead as they take on additional stock for Christmas, which inevitably puts more pressure on their balance sheets at a point when current trading conditions are poor.
“The changes we’re seeing in retail have been years in the making and, if the household names we’re used to seeing on our high streets are going to survive, they’ll need to do one of two things: either find a way of changing the rules, by proactively campaigning for changes to business rates, or rediscovering the entrepreneurial drive and flair that made them a success in the first place.”
Leigh Sparks, deputy principal and professor of retail studies at the Institute for Retail Studies at the University of Stirling, said that the Debenhams story had “not been a pretty one for a few years”. He said: “When your business is built around concessions that people can access elsewhere you have to look at what you can do to bring people in.
“It is about finding your niche and being different – and I don’t think Debenhams have got there yet.”
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