Debenhams mulls store closures amid revamp

Debenhams is considering closing up to 10 stores and exiting some international markets as the retail group focuses on growing its online business and revamping other outlets to improve the experience of its British customers.The group said on Thursday it was looking at closing the stores in the next five years, as well as shutting down 11 warehouse and distribution facilities. It added it is also considering leaving some “non-core” international markets, saying further details will be provided in October.

Debenhams wants to transform itself into a destination for “social shopping”, focusing on in-store “experiences” such as beauty makeovers and cafés to attract customers.

Although none of its 176 stores are unprofitable, the group said “we want to ensure they are fit for the future”. It added it was already deploying more of its staff to roles working with customers on the shop floor as well as reducing the number of products it stocks.

The announcement came following a strategy review overseen by Sergio Bucher, the former Amazon executive brought in to turn round Debenhams and who has led the group since October. He said the changes “will set Debenhams on course for a successful and profitable future.”

Debenhams reported a lacklustre set of results for the six months to March 4, albeit ones which were in line with expectations. Pre-tax profit fell 6.4 per cent year-on-year to £87.8m.

Although UK like-for-like sales rose 0.5 per cent year-on-year, which Debenhams said reflected growth in its online business and non-clothing items, UK earnings before interest, tax, debt and amortization were down 6 per cent. It added that the performance of its international business was also mixed.

Mr Bucher replaced Michael Sharp, who stepped down as chief executive last year after 25 years at the company amid criticism from activist investors of Debenhams’ performance.

He added:

Our customers are changing the way they shop and we are changing too. Shopping with Debenhams should be effortless, reliable and fun whichever channel our customers use.

We will be a destination for “Social Shopping” with mobile the unifying platform for interacting with our customers. If we deliver differentiated and distinctive brands, services and experiences both online and in stores, our customers will visit us more frequently and, having simplified our operations to make us more efficient, we will be able to serve them better and make better use of our resources.

To implement the changes the group said annual capex is expected to be around £150m between 2018 and 2020, compared to a current level of £130m. Exceptional costs between now and 2020 are expected to be around £50m.

Debenhams is still faces a plethora of issues which threaten its profitability. It is locked into long store leases, a legacy of its three years under private equity ownership during the mid-2000s, leaving it with less flexibility to close stores. Costs are also rising as a result of increases in business rates and the minimum wage.

(Image: PA Wire)