Debenhams’ strong Christmas trading took the market by surprise, following tales of woe at M&S and retail bellwether Next last week.
“Historically, when the High Street has suffered, Debenhams has reflected this,” analysts at Peel Hunt say. This year however the department store weathered the storm, racking up like-for-like sales of 3.7%, on a constant currency basis, in the seven weeks to January 9.
This was a record Christmas for the department store, and the longer period of the 19 weeks to January 9 was also strong, with like-for-likes up 3.5%.
Buying better and reducing promotional activity
Debenhams chief executive Michael Sharp, who is to step down later this year, said today that the retailer had expected an unpredictable winter and had subsequently slimmed down stock volumes, especially on high-margin items such as coats and heavy knitwear.
Instead, it focused on items such as fine gauge knitwear and reduced its outerwear stock by a sizeable 23% year on year.
It’s a tactic the retailer has been using for a while, although it has trimmed stock much more incrementally in previous years. Despite the large decrease, Debenhams seems to have got its sums right, not falling prey to the availability issue that plagued rivals Next and M&S this season.
This development, much aided by greater levels of open-to-buy - not committing to a full season’ stock upfront - introduced flexibility into the department store group’s business model and meant that it entered the post-Christmas sales with less discounted stock than in previous years. Its full price sales were up 5%, resulting in healthier margins.
The retailer revealed that clothing accounted for 45% of its sales this season, down from 47% the previous Christmas. Reducing its dependence on clothing means that Debenhams is less dependent on the unpredictable weather and does not run the risk of ending up with a stock room full of high margin items which are not selling.
“It has always been the case that we were coming up from behind with online sales but we are catching up quickly”
Michael Sharp, Debenhams
Sharp admitted that the department store was “coming from behind with online sales” but insisted that he was confident of reaching the performance levels of the competition.
He stood by its previously stated target of online sales comprising 30% of total sales, although he refused to put a date on when that would be achieved.
“Growth at 12.1% is very strong,” he said this morning. “It compares favourably with the market place. It has always been the case that we were coming up from behind with online sales but we are catching up quickly.”
More to do
Debenhams’ aim to have one third of its revenues come from international markets, another third from the UK and the final third from online sales is still in its infancy.
“Debenhams’ online issues have a lot to do with their customers. They need to learn who their customer is and target them better”
Rebecca Marks, Verdict
The retailer is clearly able to deliver on online fulfilment, promising a midnight order cut-off for next day delivery, yet online sales are still lagging the market.
“Debenhams’ online issues have a lot to do with their customers,” says Marks, adding that the retailer is not a destination for consumers, unlike more front-of-mind rivals such as M&S and John Lewis.
”It is more dependent on footfall and needs to build customer loyalty,” she says. ”They need to learn who their customer is and target them better.”
Although the incumbent Michael Sharp was tight-lipped on his replacement, it seems that while whoever lands the top job has their work cut out for them, Debenhams might just be turning a rather difficult corner.