Retail purists have often mocked the fact that Debenhams seems so reliant on discounting that, to paraphrase the famous John Lewis marketing slogan, Debenhams is “Never Knowingly not on Sale”.
But the approach seems to work and if Debenhams is “Britain’s favourite department store”, maybe it is because consumers actually like it always being on Sale.
The proof of any pudding is in the eating and if ever there was a period that would test Debenhams’ trading approach it would be the last four months, which for most fashion retailers has been a rather unhappy time on the back of the seasonally poor weather.
Given quite tough like-for-like comps and the unhelpful spring/summer weather, the City was braced for some weak sales numbers to be reported by Debenhams today – about 1% down like-for-like for the 16 weeks since the end of February, but the outcome was actually up 3.1% like-for-like.
Clearly, that is not as good as the 8% to 9% like-for-like sales growth seen at mighty John Lewis over the last 20 weeks, but that amazing growth has been heavily driven by electricals sales and you would have to work pretty hard to find a TV set on sale in Debenhams these days, let alone an iPad, so the comparison with John Lewis is not really fair.
By contrast, little Beales (of Bournemouth) has reported today a fall of 6.7% in its like-for-like sales for the six months to the end of April, with gross margins 90 basis points down.
A better comparison might be with Debenhams’ old rival House of Fraser, which is more premium in its market positioning, but has a similar fashion bias and online growth focus, and which generated like-for-like sales up by 2.1% in the 18 weeks to June 3rd, although with gross margins some 90 basis points down.
At this point, the focus inevitably turns to Debenhams’ gross margins. These are never as bad as might be expected from the apparently constant “Sale” activity, because so much of Debenhams’ promotions are “planned” events, but there have been adverse mix and other issues, so the gross margin has taken a bit of a hit, although the mooted 30 basis points reduction compares well with House of Fraser, let alone John Lewis.
One area that Debenhams has managed to grow in the last few months has been its non-clothing business of beauty and home etc, which has helped offset the weather-related pressure on clothing sales, but this carries a lower gross margin (although not as low as on electricals).
But Debenhams’ stock mark-downs in recent months have not been any higher than last year and its promotional activity has been very similar, in terms of number of days of Sale campaigns and the length and breadth of discounts.
In fact, its Summer Sale was actually a week later than last year, at a time when many high street competitors have been bringing forward Sale events and stepping up their unplanned promotional activity.
It is easy to mock the fact that “planned“ promotions do not really create value for consumers, if they are simply artificial reductions built-in to the margin structure, but there is an art to doing these things well and Debenhams do these promotions well.
Debenhams, if nothing else, has good traders and they realised this year that with consumers focusing more and more of their spending on big events, like Mother’s Day, Easter, the Diamond Jubilee and Father’s Day that it made sense to focus the marketing around these footfall-creating events, as well as the increasingly important ‘pay-day at month-end’ factor in driving sales.
This has brought an unquantified rise in marketing costs, which is why, together with the slight gross margin hit, there has been no full-year profit forecast upgrade today on the back of the better than expected like-for-like sales performance.
Retail purists, like me, still feel uncomfortable with the contradiction between a strategic approach that aspires to sell so-called “Designer” labels and a promotional approach that undermines confidence in paying full-price, but somehow it works for Debenhams - not least as everybody is a sucker for bargains and money-off deals at present. And, to be fair, Debenhams has invested heavily in its excellent “Life Made Fabulous” TV ads to improve perceptions of the brand.
At least Debenhams isn’t offering ‘20% off’ almost whatever you want, which is what M&S seems to have resorted to in recent months on much of its clothing range.
With M&S likely to report a fall of 7% 8% in like-for-like sales for general merchandise on July 10 for their first-quarter period to end-June, the City is pointing fingers at M&S as the likely other side of the coin from Debenhams’ improved market share performance in womenswear.
M&S has bigger problems than Debenhams at present and needs to be careful that it doesn’t acquire a reputation for being “Never Knowingly not on Sale”.
About Nick Bubb
Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos “Retail Think-Tank”.