The redundancy of Debenhams’ once-vaunted claim to be ‘Britain’s favourite department store’ was sadly laid bare as it fell into a pre-pack administration today.
Control of the department store chain was passed to its lenders after a raft of counter-proposals, peppered by angry outbursts, from the retailer’s biggest shareholder – Mike Ashley’s Sports Direct – proved indigestible.
There was one note of reassurance as Debenhams reached financial breaking point.
While shareholders’ stakes will be wiped out, interim chair Terry Duddy said “customers, colleagues, pension holders, suppliers and landlords can be reassured that Debenhams will now be able to move forward on a stable footing”.
While this will no doubt be welcome news, it begs one big question.
What will change at Debenhams to ensure that remains the case down the line, so the 241-year-old retailer does not find itself in the same position once again?
Why does Debenhams exist? What is its purpose? Unless those questions can be adequately answered and then well executed upon, the retailer’s days could be numbered whoever owns it – a pertinent factor, given that the retailer is back up for sale following the administration.
Cost and failure
The fact that it is the second department store group in less than a year to hit the buffers, following the administration of House of Fraser and its subsequent purchase by Sports Direct last August, shows just how urgently an answer is needed.
Much has been made of the crippling costs borne by Debenhams. Whitman Howard analyst Tony Shiret, one of the City’s most seasoned retail analysts, observed that Debenhams “is being killed by its rent”. He put the rent bill at about £200m and then another £100m of business rates on top.
“There is no getting away from the fact that Debenhams couldn’t give shoppers enough reasons to open their purses”
The extent of the punishing costs shouldered by retailers is infuriating. The industry must carry on making its voice heard on those issues. Ironically, it is Ashley who is perhaps playing the most active role in resetting the economics of the high street.
But there is more to Debenhams’ difficulties than its overheads.
Debenhams chief executive Sergio Bucher, who surely cannot remain long in the role, hoped to draw on the relative strengths of bricks and clicks through his ‘Debenhams Redesigned’ strategy to build digital sales and enhance the in-store experience.
His approach was exemplified at the Watford branch that opened last year, particularly in its new-look beauty hall.
While it might have made intellectual sense, the retailer was in no position to replicate its best proposition across the board.
That was partly because of the expense, but equally there is no getting away from the fact that Debenhams also couldn’t give shoppers enough reasons to open their purses – not paying full price, at least. That is a failure in retailing, not just a reflection of costs.
As its lenders jump into the driving seat, what will be done differently or better from a retailing point of view to set the department store group up for future success?
The statement following the administration and sale to lenders emphasised continuity: “The group will continue to implement the restructuring of its operations, including optimising the store portfolio (in line with plans already communicated) to improve trading performance and deleverage the business.”
“The question ultimately remains: what is Debenhams for?”
So, what has changed from a retailing rather than a cost perspective? The question ultimately remains: what is Debenhams for?
The same question should be asked by all retailers as they navigate some of the most unforgiving trading conditions and seismic societal changes, frequently driven by technology, that the industry has ever experienced.
It’s a question that should be asked most often when a business is doing well, rather than when it’s in tailspin, and which should be answerable in simple terms that reflect closeness to consumers.
That way retailers stand the best chance of remaining relevant today and tomorrow, not just yesterday.
Analysis: What next for Debenhams?
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Opinion: Debenhams needs renewed purpose post-administration