Debenhams has crashed to an annual loss of nearly £500m and confirmed plans to close almost a third of its stores. What has gone wrong?
Too many stores
Debenhams has 165 stores around the country, which is too many mouths to feed at a time when its sales are falling and costs are rising. The company had previously outlined plans to close 10 loss-making stores within five years but as its finances continue to deteriorate – it has issued three profit warnings this year - that figure has risen to 50.
Rents are too high
Many Debenhams stores are on long leases agreed in the years when high street sales weremore buoyant. The firm’s annual rent bill is nearly £300m, or about 13% of its annual turnover. Its chief executive, Sergio Bucher, says that it is paying too much rent for the majority of its stores, and is asking landlords for help at a time when rivals such as House of Fraser and Marks & Spencer are also closing stores.
Online
Britons are spending more online and visiting the high street less. With a sprawling estate of stores to pay for, Debenhams has been hit hard by this shift. To fight back it has had to find ways to make its stores more exciting while expanding its website. Sales in stores open more than a year were down 2.3% while online sales grew 12.3%, meaning around a fifth of its sales are now online, about half the proportion of its nimbler rival John Lewis.
Business rates
Last year’s business rates revaluation added pressure on the department store chain’s finances. Retailers with stores in parts of the country where there have been property booms have been particularly hard hit because rates are calculated as a proportion of a property’s value. The company’s business rates bill increased to £80m this year, not so far off the its the firm’s market value.
Wrong product
The retailer is best known for the Designers at Debenhams collections created over the past two decades by designers including Jasper Conran and Julien Macdonald. Some brands, including Betty Jackson, have been axed because they had become dated, but replacement fashion ranges have so far lacked pulling power as shoppers take a cautious approach to spending while the uncertainty created by Brexit continues.
