Why Debenhams has had three profit warnings in a year and could Mike Ashley help?
City grandee Crispin Odey, whose hedge fund holds a short position in Debenhams, said last year that the retailer was in a race with House of Fraser “as to who will go down first”.
While House of Fraser’s fate will be sealed at its CVA on Friday, Debenhams’ future looks dark, with the embattled department store yesterday issuing its third profit warning for the year. The news led to Debenhams shares closing down nearly 11 per cent, leaving its market cap at a meagre £240m – down from almost £2bn when it went public in 2006 and a mere tenth of the size of its younger rival Boohoo.
Debenhams is in the doldrums for three main reasons. Firstly, it’s playing catch up to leaner and meaner online rivals who don’t come with the baggage of expensive real estate or big wage bills. It’s fallen behind in a market where nearly one-fifth of retail sales have shifted online – this is despite Sergio Bucher, ex-vice president of Amazon’s fashion division in Europe, being at the helm.
Read more: Debenhams shares slump on profit warning in fresh blow for the high street
Secondly, it lacks differentiation that is much needed in the current cut-throat retail environment. If shoppers want a bargain, they go to Primark. If they want convenience, they log on to Amazon or Asos.
Thirdly, its strategy of reducing reliance on the deeply discounted clothing market hasn’t delivered. No matter how many Costa Coffees and Western Unions you put in Debenhams stores, buyers associate the brand with clothes – an area in which it hasn’t been able to entice shoppers with good bargains.
Read more: M&S fashion brands are under threat as the retailer cuts costs
Debenhams’ big transformation plan hangs on cutting capital spending to between £75m and £90m next year from £140m in the current year. But if capital outlay is contained, wouldn't turning around the business be an even tougher task?
That said, one can’t help but wonder whether there will be a distinct sense of Schadenfreude among Debenhams bosses this week should House of Fraser announce further store closures.
Debenhams’ finance boss admitted yesterday that in places like Oxford Street and Milton Keynes, where both retailers have a presence, House of Fraser’s closure would be a boost for its arch rival.
If its turnaround doesn’t go as planned then there is always the spectre of Sports Direct boss Mike Ashley, who is rumoured to be mulling a takeover. Perhaps he can give Debenhams the dose of retail resuscitation it desperately needs.
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