Following much speculation ahead of Debenhams’ latest trading update today, the department store chain announced it would be closing 50 unprofitable stores across the UK over the next three to five years, as digital channels strengthen and the business continues a strategic review of its store portfolio.
Debenhams saw like-for-like (LFL) sales slip 2.3% during the year but delivered above-market digital growth of 12%, as a result of investment in mobile, digital marketing and improved customer experience.
Digital growth accelerated in H2 to 16%, continuing to outpace the overall market. Mobile demand grew abound 20%, with smartphone conversion rates up 17%.
As the focus on digital continues, as does the review of Debenhams store network, “to address structural challenge and drive profitable growth”, with closure targets ramped up from 10 stores to 50 by 2023. There are also plans to develop new lower-cost approach for around 20 stores
The business has also accelerated cost reduction activity with £12million savings achieved, annualising to £20million. Debenhams said it has had to take decisive action in challenging market conditions in order to generate cash, reduce debt and reshape store estate.
Revenue across the UK Debenhams business was down 3.2% to £1,832.7 million. A 2.7% decline in gross transactional value was attributed to operating in “a volatile and highly competitive market… exacerbated by weak consumer confidence, particularly seen through weaker demand in areas of more discretionary spend.”
Cash exceptional charges of £12.3m in year, non-cash exceptional write-downs of £512.4m primarily relating to store and lease provisions, systems and impairment to historic goodwill – and in line with the stated plan to prioritise debt reduction and cash generation, no final dividend will be paid to directors.
Looking ahead, further focus on digital will see the business utilising its partnership with digital experience platform Mobify to separating its digital customer experience from the underlying platform in order to drive faster, positive changes.
From February 2019 desktop customers will move across to the Mobify platform, to provide a consistent and scalable experience across all of Debenhams’ customer-facing digital channels.
The business is also building ranges online first and using online analytics to support range decisions based on customer search behaviour. Finally, the business plans to bring its channels closer together and will leverage the huge growth in local mobile search to raise its visibility on key products and brands, working with Google to surface local store information alongside visual shopping ads to drive traffic into stores.
Debenhams CEO Sergio Bucher commented on the results: “It has been a tough year for retail in 2018 and our performance reflects that. We are taking decisive steps to strengthen Debenhams in a market that remains volatile and challenging. Working with our new CFO Rachel Osborne, and the board, I am determined to maintain rigorous cost and capital discipline and to prioritise investment to achieve profitable growth. At the same time, we are taking tough decisions on stores where financial performance is likely to deteriorate over time.
"Debenhams remains a strong and trusted brand with 19million customers shopping with us over the past year. Our transformation strategy is gaining traction, with positive results from new product and new formats, general acclaim for our store of the future in Watford and digital growth that is outpacing the market. With a strengthened balance sheet, we will focus investment behind our strategic priorities and ensure that Debenhams has a sustainable and profitable future."