Debenhams forced to close 50 stores after record loss

Source: Proactive Investors

Serio Bucher, CEO of Debanhams, believes his company will have to take some drastic steps to support its retail businesses in what he calls a volatile and challenging market.


An attempt to turn the tide

Debenham has suffered its largest loss since its inception 240 years ago: the retailer, who was forced to issue four profit warnings this year, encountered exceptionally high costs at 512 million pound (580 million euro), leading to a loss of 491.5 million pound (550 million euro). Only last year, Debenham made a profit of 59 million pound (67 million euro). Comparable turnover growth decreased by 2.3% due to the "volatile" market, according to the company. Despite these negative numbers, Debenhams emphasised that it had maintained its market share of its most important markets: fashion and beauty.


The record loss comes in spite of cost cuts for 20 million pound (22 million euro), leading the board to aim for an additional 50 million pound (55 million euro) of annual cost cuts, in order to accumulate cuts of 130 million pound (147 million euro) by 2020. The board may also be considering its options for the possible sale of non-core activities.


Over the next five years, the London-based chain will be closing fifty poorly performing outlets. About a hundred other stores will be "reinvented" and a new and cost-efficient approach will follow for twenty outlets. These plans for the future may jeopardize 5,000 of the 27,000 jobs.


Clicks beat bricks

The department store chain is one of the prominent retail businesses that are struggling now that more consumers are switching to online shopping and discount-hunting. Nevertheless, Debenhams stated in the beginning of this year that it had achieved 12% growth online, exceeding the average growth on the market. The second half of the year even saw that number rise to 16%. "Clicks are beating bricks, and retailers are having to cut their cloth accordingly," says analyst Laith Khalaf of investment agency Hargreaves Lansdown. 


"The combination of a strong digital offering with a presence on the UK high street could be a winning combination for any retailer that gets it right, as the physical outlets provide a handy place for customers to collect and return items," Khalaf adds. To embrace those omnichannel opportunities, the chain recruted its CEO (Serio Bucher) from the ranks of Amazon's directors. Debenhams will likely be putting his technical knowledge to use to achieve this modernisation.