Debenhams’ Q3 trading statement was eagerly awaited, following its far better than expected half year figures. This set are much more in line with what I expected at least. The “value of transactions” (aka sales) is up yoy for the 9 months to mid June. No profits are disclosed but profits guidance to the City is unchanged. In the wider competitive context, total clothing and footwear spend was up 2.8% over the period so Debenhams has certainly lost some market share.
The company is a good example of a retailer caught in the middle of an increasingly polarising market. It has for many years been tied to an intensive promotional strategy and the company has been trying hard to manage its discount days down to defend margins. Doing this in a market which itself is getting increasingly promotional is not easy. While management says it is selling more at full price, there is no obviously noticeable change in the body language of its stores. It will be difficult to educate its customers to buy a little more at full price after decades of virtually back-to-back promotions.
Most of the company’s narrative these days is around deals with third party partners. In short, this means giving increasing slices of Debenhams’ space to “tenant” companies. With sales per square foot of less than £200pa, it is very difficult for any retailer to make money and in this context, Debenhams actually does extraordinarily well to deliver the margins it does. It therefore makes sense to bring in other propositions that might generate a better return for stakeholders in the short term. Nevertheless, the key footfall driver for third part occupants is Debenhams’ own proposition so one way or another, the fundamental challenge of becoming a far better retailer remains.
** For more analysis and forecasts of Debenhams, its competitors and markets, sign up for access to our premium content