Debenhams has had a rollercoaster of a year so far – its chair is gone, its chief executive kicked off the board and stores slated for closure.
But the department store has two reasons to be cheerful. In the short term, it has secured a £40m bridging loan. In the long term, it has partnered with Li & Fung to improve its own-brand supply chain.
Of course, improving the supply chain does not quite make up for the Mike Ashley-led coup on its boardroom.
And Li & Fung is not without its own problems. The supply chain giant suffered as multinational retailers such as Inditex began to work directly with factories, cutting out the middleman and pocketing the difference.
“Their vision for the business is for an end-to-end digital model”
Steven Cook, Debenhams
Nevertheless, the Hong Kong-based business takes a digital-first approach in a what is still an analogue industry; it will have invested $150m in new technology in three years by 2020 and knows its markets inside out – an advantage that most retailers do not possess.
“They have really evolved as a business,” Debenhams fashion and home managing director Steven Cook tells me. “Their vision for the business is for an end-to-end digital model. Time and nimbleness and responsiveness is everything we need to maximise our business in this turbulent retail market.”
Debenhams hopes to leverage Li & Fung’s network and bargaining power to reduce lead times and prices and be more on top of trends when it comes to own-brand product.
Cutting costs and lead times
Saving money and time in the supply chain is crucial for all fashion retailers but is perhaps more important for Debenhams than most.
Working with Li & Fung should enable the business to quickly re-order bestsellers, shorten initial lead times and benefit from the efficiencies that Li & Fung’s reach brings.
“Li & Fung often sources from the same factory as we do. But where we order £2m of bed sheets and linens from one of our suppliers, they order close to £200m – there are natural efficiencies”
Steven Cook, Debenhams
“We have been very silo-ed as a business,” says Cook. “This is normal in the department store world – men’s, women’s and lingerie work separately and there is very little consolidation of raw materials. Li & Fung has the capability to help us with this.”
If a raw material is in stock and a department has a bestseller design that it wants to reissue, it will now be able to turn it around in five weeks. That process at present takes at least 10 weeks.
“That is a significant improvement and ensures consistency. It is not that we cannot work quickly in the current environment but our approach is not consistent,” Cook says.
Those efficiencies will also work to cut costs.
“Li & Fung often sources from the same factory as we do,” says Cook. “But where we order £2m of bed sheets and linens from one of our suppliers, they order close to £200m – there are natural efficiencies.”
Improvements ‘well underway’
As the power in the brand-retailer relationship shifts further in favour of brands, having a good own-label offer will be key to operating a healthy retail business because it guarantees exclusive product and a healthy margin.
Own-brand and exclusive partnership product comprise 50% of Debenhams’ sales; a balance, ironically, that its much healthier competitor John Lewis is aiming to reach next year.
“Vis à vis our competitors, we were built for this,” says Cook. “We were built to be an own-brand business.”
He says that improving own-brand is “already well underway”.
“We are getting a very positive reaction to reinvented product. We are taking a stand on brands and getting back to their DNA. You will see us starting to build on that business and in womenswear, you will certainly see an evolution of that product and brand definition.”
If Debenhams can trade through its difficulties then partnerships with businesses such as Li & Fung will position it well for the future. But while the retailer’s shares are at present valued at a paltry 3p, it may take more than Li & Fung’s vote of confidence to see it through.