Tough market for fashion says Debenhams but Preen launch goes well
Debenhams released what surely must be one of the most eagerly-awaited trading updates Tuesday morning. The firm told us just how it’s doing in a retail environment that’s challenging for department stores as it launches a whole new strategy under a new CEO who’s hoping to apply much of what he learned at Amazon to the business.
So what was the story? Times are clearly tough but the company is holding its own - just. Let’s look at the figures. In the 15 weeks to June 17, gross transaction value (GTV) fell a small 1%. But in the 41 weeks to mid-June, GTV had risen 1.7%. So clearly a slowdown in the latest quarter but one that at least has tipped Debenhams into only slightly negative territory.
The picture was similar for comparable sales. In the 41-week period they were up 1.8% but in the 15 weeks they fell by 0.9%. However, on a constant currency basis, the firm did turn negative in both periods with the 41 weeks seeing a 0.7% fall and the shorter period a worse 2.4% fall.
Online sales delivered good news as they usually do for retailers these days. But the question is: was the news good enough? Digital sales rose 12.6% in the 41 weeks, which is a respectable figure. But they were up only 7.6% in the latest period, which falls well short of the double-digits that many would expect.
The company admitted that e-sales growth has slowed in recent weeks but said that was “in line with the UK online market,” and added that year-to-date growth remains strong, supported by enhancements including new beauty brand presentations and a new payment page.
At least the gross margin was unchanged and the company is still expecting pre-tax profit to be “within the range of market expectations,” although “should current market volatility continue, the outcome could be towards the lower end of the current range.”
TURNAROUND ON TRACK?
It’s very obvious that former Amazon exec Sergio Bucher has a big task on his hands as he works to turn around Debenhams in his still-new role as CEO there.
The turnaround plan comes at a uniquely difficult time for British retail and the company said Tuesday that the UK trading environment has been “more volatile in the second half of our trading year.” However, the turnaround plan does seem to be helping given that Debenhams’ new strategy will see it focusing more heavily on certain key areas.
It said that in the second half, its targeted destination categories of Beauty, Accessories and Food & Drink “have helped to mitigate the impact of a weaker clothing market,” and that “with 13 new food offers in the period, food sales have risen 5%.”
And it launched a new contemporary Designers at Debenhams range this season, Studio by Preen, which has been “very positively received,” with the firm also seeing a strong positive response to its brands on third party platforms.
Any more positives? The company delivered further improvement in full-price sales, with growth of 1.7%.
And that digital growth, even though it could have been better, continued to be driven by mobile demand, with its further enhancements supporting rapid m-commerce rises (up 47% year-on-year) and improved conversion rates (up 12%).
Looking abroad, the firm’s constant currency performance has improved, and the foreign exchange impact has remained positive. But underlying markets remain mixed with growth in Denmark offset by weaker trading in the Middle East (a problem many retailers have reported) and the Republic of Ireland. A core Debenhams offer launched on Amazon.de this month, so that should help the international operations.
The company also said that its new Debenhams Redesigned strategy that was unveiled in April sees it making “good progress putting in place our plans to drive growth through Social Shopping and our shorter term Fix the Basics plan.”
This has included establishing a training programme to support up to 2,000 staff switching to customer-facing roles; implementing direct-to-floor deliveries, which will cut replenishment times from eight days to two; and completing the transition to a single warehouse management system.
CHALLENGES AND OPORTUNITIES
So what does Sergio Bucher make of it all? He talked up the retailer’s progress in terms of implementing its new strategy but added: "As industry data has confirmed, May was a tough month for retailers and we continue to see volatility in trading week to week. As a result we are focused on delivering cost control and self-help through our Fix the Basics plan. We continue to build good foundations for longer term growth at Debenhams by becoming a Destination, Digital and Different.”
So the company is clearly not yet where it wants to be and there’s a lot of work to do even without the huge economic headwinds at present. It looks like the rest of the financial year could be a bumpy ride and it seems to be one that could go either way for Debenhams.
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