Debenhams strategy review: all the details as it prepares for 'social shopping' future

Where to start? Department stores giant Debenhams announced its half-year results on Thursday morning. But the numbers came along with a major strategy review that its CEO (ex-Amazon exec Sergio Bucher) hopes will drive it forward - successfully - in an increasingly challenging omnichannel world.


Debenhams


OK, let’s go with the strategy review - it’s so much more interesting than a set of results that were “in line with expectations”. Exciting news came in the form of a massive digital focus, a deeper dive into footwear, lingerie, beauty and accessories, an aim to become the social shopping leader, and a review of the store and warehouse estate.

DIGITAL, DIGITAL DIGITAL

No surprise that digital will be a huge part of the new Debenhams. The retailer said “digital is the engine of growth in the UK and a significant opportunity overseas.” In the future it will build brand ranges for its online customers first and will then edit its store ranges based on insight from customer segmentation and online catchment profiles.

Being digital-driven also means mobile will be a big part of of its future strategy. “The mobile phone is front and centre of how our customers interact with each other and it is the enabler for social shopping,” it said. “We will invest in an upgraded mobile platform that will help us unite channels and connect better with our customer” to make it the leading name in ‘social shopping’. That means “offering exciting new products, services and experiences, as well as building on category strengths.”

And it wants to broaden its customer reach as digital distribution allows it to target a different customer demographic, who might not otherwise shop at Debenhams. That will include a big extension of its programme to sell via other online partners both in the UK and internationally. For example it is launching on Amazon.de next month.

STORES AND STORAGE

Not that digital is the end of the story and this is certainly not a case of a CEO simply applying what he learnt in his last post to his new one. Debenhams wants to “remove barriers to shopping both online and in-store, simplifying and focusing [the] store estate and operating model, and making more effective use of people, inventory and infrastructure.

The result of this is that 10 store are under review and could close, even though the company said it has no lossmaking stores in its estate. Instead it is facing up to the realities of modern shopping and realises it may simply need fewer locations as more goods are sold online and as surviving store become experience destination rather than mere shops .
It also realises that some of its stores may need to change to adapt to customer pricing priorities and it plans to identify locations with the potential to be convert to Outlets.

And logistics centres are being looked at too with a new, more efficient inventory management approach that has already started meaning that it needs fewer warehouses. One large centre and 10 smaller warehouses are due to be shuttered.

PRODUCT FOCUS

While shoppers are increasingly buying experiences rather than stuff, it’s clear that product is still at the heart of what Debenhams does. With this in mind it is going after the big growth categories. It will aim to be even bigger in beauty, despite already heading towards being a £1 billion presence in that segment. It’s already the market leader in premium make-up and the number two in premium beauty overall and it wants to grab a larger slice of the “highly fragmented” £4 billion beauty services pie.

It will dive deeper into accessories, footwear and lingerie and “sees the opportunity to improve its customer consideration in a broader range of categories.”

But with that whole ‘experiences vs stuff’ trend to the fore and the idea of shopping as a leisure activity always in mind, its Meet me @Debenhams initiative will encourage consumers to spend more leisure time in its stores via extra services like VIP access to in-store events and a widening of its food and drink offer.


Debenhams


Part of this will also be seen in the way it evolves click-and-collect, which already accounts for 30% of its online sales fulfilment. It will move it from “being functional and reliable to make it also engaging and sociable, linking it with other services, such as personal shopping.” It will trial some Click, Collect & Play departments, linking with personal shopping services, this autumn.

It will also reinvent Designers@Debenhams, “making the proposition more relevant and by managing the brand portfolio more robustly.” The company said: “We will invest in full-price marketing to support our ambition to build brands with their own brand equity and also with international appeal.”

And talking of international, while its full review on this front isn’t ready yet, it has already said it sees major opportunities for its Danish Magasin du Nord operation, especially by leveraging its online strengths.

Sergio Bucher said of all this: ”Our customers are changing the way they shop and we are changing too. Shopping with Debenhams should be effortless, reliable and fun whichever channel our customers use. If we deliver differentiated and distinctive brands, services and experiences both online and in stores, our customers will visit us more frequently and, having simplified our operations to make us more efficient, we will be able to serve them better and make better use of our resources.”

THE CHANGING CUSTOMER

And that customer has clearly been at the heart of this review.  The company arrived at its conclusions after conducting research with 16,000 shoppers (both Debenhams customers and non-customers} and undertaking a detailed, bottom-up analysis of profitability by category, by brand and by store.

The message it got back was that its 19 million UK customers like its beauty halls and well-located stores, its improved online service, its choice of products and brands, and its value for money. But they said the company sometimes make it “hard work for them to shop with us and we need to serve them better.”

Customer research also showed that two-thirds of the women surveyed regard leisure to be as important or more important than convenience when shopping. The same is true of more than half of the men.


Debenhams


And smartphones came out as crucial shopping tools too. Mobile phones are being used in all channels, not just online, as they become an integral part of everyday life. Its survey data shows that the most frequent use of smartphones is to engage (write reviews, seek opinions, comment on social media) or check logistics (store location, product availability).
That’s why the retailer is focusing so heavily on social shopping “as a fun leisure activity enjoyed with friends and family and shared via social media.”

It wants to give its customers more reasons to ‘visit’ Debenhams, whether they are at home, on the train or in the high street, and build a stronger relationship with them, centred around mobile interaction.

FIXING THE BASICS

But while the headline-grabbers like social shopping and product initiatives are at the heart of the new plan, there is a lot of less sexy work going on too.

The company’s Fix the Basics plan is already under way to switch around 2,000 more staff to customer-facing roles, declutter the store environment with around a 10% reduction in stock options, and replenish stock faster. The aforementioned warehouse closures, are also part of this, as is “testing new concepts and formats for stronger and more relevant brand and category presentation,” and that review of its stores.

The up-to-10 UK stores that are earmarked for closure will not shut immediately with the plan covering a five-year period. Its widely-flagged plan to exit some brands, and its less-widely-flagged intention to quit non-core international markets, is likely to happen much more quickly though.

One thing that is known is that this will take a lot of extra investment with the spend to upgrade mobile systems, its supply chain and invest in its evolving store estate meaning annual capex of around £150m between FY2018 and FY2020 compared to a current annual bill of around £130m.

AND THOSE INTERIM RESULTS…

That’s some big change ahead. But what of the current and recent performance? The company also said Thursday that in the half-year to March 4, group gross transaction value (GTV) was up 2.9% to £1,676.5m with UK comparable sales up, but only by 0.5%, “reflecting further progress in growing non-clothing categories and strong online momentum” with the full-price sales mix up 2%. But group EBITDA was down 2.5% to £149.1m, with the UK down 6% and International up 13.1%.

The underlying international performance remained mixed though. Magasin du Nord in Denmark saw a tougher trading environment while the group's Irish business benefitted from restructuring under examinership.

Group profit before tax was in line with market expectations, down 6.4% to £87.8m and net debt was reduced to £216.9m.


Debenhams


The retailer said it delivered “strong progress in Beauty and Gifting categories, especially over peak trading.” Its non-clothing sales mix represented 56% of GTV in H1 2017, up 1% year-on-year.

Online sales grew 14.6% for the half year, with the UK up 12%, driven by mobile orders rising 64%. It delivered a particularly strong performance in online beauty, and growth in concessions as more of its partners were able to meet its premium delivery promises. Premium delivery options grew by 64%.

On a local currency basis, international performance was mixed: economic headwinds continued to weigh on Middle Eastern markets which held back franchise performance. And Magasin du Nord saw a tougher trading environment although online growth remained strong.

There was little detail on the outlook with the firm simply saying it has “delivered a solid performance in the first half of the year, and [has] delivered results in line with market expectations. Our diversified business model means that Debenhams is in good shape to withstand a market background that remains uncertain.”

Short on detail that outlook may have been but nobody could accuse Debenhams of not giving much information away generally on Thursday so we expect some interesting updates in the future. Watch this space.

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