- Debenhams sales up 2%, but pre-tax profit down 44.2% as restructuring and a move to digital push up costs.
- The department store plans to trial in-store gyms and beauty bars as part of efforts to make its shops more profitable and a “destination.”
- Two unprofitable stores are closing down and a further eight have been identified as at risk.
LONDON — Struggling British department store Debenhams on Thursday announced a raft of new initiatives to try and kick-start its business.
Debenhams announced plans to:
- Partner with Sweat! to offer in-store gyms, initially in three locations;
- Open beauty bars at its Oxford Street store in partnership with digital beauty brand blow LTD, which it invested in back in September;
- Open at least 50 new food and drink concessions within its stores, such as Nandos, The Real Greek, and health-focused Loaf & Bloom, a new brand developed by Debenhams.
Debenhams said the initiatives are part of its “mission to make shopping confidence-boosting, sociable and fun.” The changes are part of new CEO Sergio Bucher’s plans to “redesign” the department store. Bucher joined from Amazon in May last year and is trying to make Debenhams more digitally focused and reinvent stores.
The company said it has seen positive results from two “test labs” in its stores in Stevenage and Wolverhampton, which let the company quickly test out new ideas.
However, Debenhams full-year results, which were presented alongside the plans, highlight why it is in need of such a radical overhaul:
- Sales up by 2%, but flat in the UK;
- Earnings before exceptional costs down 7% to £217 million;
- Underlying pre-tax profit down 16% to £95.2 million;
- Reported pre-tax profit down 44.2% to £59 million.
Traditional retailers are grappling with the rapid rise of e-commerce, which often undercuts physical retailers on cost due to lower overheads.
Department stores are seen as particularly at risk, given the fact that most have large stores with high staffing and rent costs. Sears, one of the best-known department stores in the US, has been battling to avoid bankruptcy, for example.
Debenhams announced plans to close two underperforming stores, Eltham and Farnborough, in January. A review identified a total of 10 locations at risk of becoming unprofitable and Debenhams took a £10 million writedown on underperforming stores.
UK store sales fell 1.5% last year as customers turned to digital, with online sales rising by 1.4%. The business warned that the shift to online is also contributing to a rise in operating costs, which rose by 3.3% in the year.
Bucher said in a statement that Debenhams is making “good progress with implementing our new strategy.”
“There is a lot to do but I am delighted with the enthusiasm and flair shown by my colleagues as we embark on this journey. I’d like to thank the whole team for delivering these results against a background of rapid change in the business.”
Nick Bubb, an independent retail analyst, said Debenhams update is “long on words/hope and short on hard facts/current trading news.”
Bucher said: “The environment remains uncertain and we face tough comparatives over the key Christmas weeks. However, we are well prepared for peak trading and the early signs from our activity to date confirm that we are moving in the right direction towards a successful and profitable future for Debenhams.”
Neil Wilson, a senior analyst at ETX Capital, said in an email: “Debenhams would appear to embody many of the struggles facing the high street. Shoppers are going online; the weak pound is pushing up input costs, hitting margins; and labour costs are rising.”
Debenhams shares opened lower on Thursday but are 2% higher after around half an hour of trade. The share price has been boosted by 57% growth in mobile sales for Debenhams, suggesting its digital push could pay off.