As he unveils his latest store, Debenhams’ chief executive explains why he’s confident in prospects despite tough conditions.
If I were to tell you about a UK retailer with £3bn of sales annually, producing EBITDA of £160m, growing online sales by a double-digit percentage and with 19 million customers every year visiting its stores, you’d think it was in quite decent shape.
The fact that the retailer in question is Debenhams might surprise you. Yet in a retail environment where there is hysteria about the future of retail and particularly the department store, this strange gap between perception and reality is where we find ourselves.
This week Debenhams opens a new store in Watford. Given we have 165 stores, most of them in prime locations, this is probably one of the last new Debenhams stores which will open in the UK.
I am proud of what we have created. We’ve worked with the landlord, with beauty brands and with new partners such as furniture brand Swoon to create what we believe is a real destination in a prosperous town where Debenhams wasn’t previously represented.
I joined Debenhams from Amazon in 2016 because I believe the department store model has a future.
Some people thought it was mad then, and given the way the market has changed in the intervening period, I fully expect more people think that now.
Yet I remain of the belief that there is a bright future for department stores if we can create genuine destinations where consumers choose to spend their leisure time, and can combine that with a compelling online offer.
I wouldn’t for a moment downplay the challenges we and our sector face.
Shopper behaviour is changing, and while in one way we are benefiting from this channel shift because our online business is growing ahead of the market, this inevitably puts strain on the economics of stores.
The acceleration in the pace of market change means we need to implement our plan much faster than we originally envisaged.
“Things that sensible businesses do in both good times and bad, such as the use of consultants to examine future options, become portrayed as portents of impending doom”
These challenges are compounded by other factors which negatively influence sentiment. With competitors going into administration, confidence in the sector gets hit.
Credit insurers always become more cautious in tough retail markets, which in turn affects supplier confidence – especially when that is amplified in the media.
Things that sensible businesses do in both good times and bad, such as the use of consultants to examine future options, become portrayed as portents of impending doom.
The risk is that all this noise creates a perception of negativity which can blight a company in the eyes of its stakeholders.
We have a plan at Debenhams and we are working hard to execute it. We are managing costs carefully, closing some stores, and investing prudently in our offer.
We are working with landlords, who themselves face significant pressures, to take advantage of opportunities to downsize stores and re-gear leases. They have an important part to play in helping us to adjust our operating model and ensure that Debenhams will continue to anchor shopping centres in towns around the country.
Where we work in partnership, as with Intu in Watford, both parties benefit. But not all landlords have yet adjusted to the new reality of retail.
In the process of opening in Watford, we have created jobs for about 400 people and anchored a shopping centre extension which will revive the town centre.
The value of stores
I’m not a Brit, but since taking over at Debenhams two years ago I have visited towns and cities around the UK in varying degrees of health, and I have seen how important the role of retail is in these places.
There is a question for the UK government over whether it feels the same way. The unequal burden placed on physical retailers by business rates is unfair and needs addressing.
Debenhams paid £80m in business rates last year, five times more than our biggest online competitor. If we were taxed on the same basis as they are, our pre-tax profits would have trebled.
Debenhams employs over 20,000 people in the UK and every single one of us is straining every sinew to meet our customers’ needs and improve the performance of the business.
Market conditions and the deafening noise around the sector aren’t doing us any favours. But my confidence that we can deliver the turnaround and carve out a bright future is even greater than it was two years ago.