Beauty and gifts ride to Debenhams rescue in face of weak clothing market
today Oct 27, 2016
UK-based department stores giant Debenhams battled a weak clothing market in the year to August 27 but strength in categories like beauty (especially premium make-up), gifts and swimwear carried it through.
With a focus on full price, cutting back on outerwear and boosting those non-fashion categories, it managed to drive sales up - but only just.
It all meant the retail giant was able to report like-for-like sales up 0.7% on a constant currency basis or 0.61% as reported. And the gross transaction value was up a slim 1.3% to £2,5895.9m in constant currencies, or 2.7% reported.
But there was a mix of bad news in its earnings report Thursday morning too with group earnings before interest, taxes depreciation and amortisation (Ebitda) down 2.2% to £233.4m. Underlying profit before tax edged up just 0.5% to £114.1m.
The gross margin fell 10 basis points due to categories like beauty and the concessions that are a feature of Debenhams’ stores having a lower margin rate than own-bought clothing.
The company, which operates 250 stores in 27 countries, described it all as a “solid performance in line with expectations” and it managed to reduce its debt during the period, bringing the figure down by £40.8m to £279m.
Other good news included the retailer selling more goods at full price, despite a “more promotional market background in the second half of the year.”
And of course, online sales were a bright spot as they are for so many retailers at the moment. They now make up 14.7% of group sales and 14% of Ebitda after rising 9.3% as growth in mobile supported the strong multi-channel performance.
Mobile now represents over 50% of UK online orders and there was strong growth in Click and Collect, up 35% year on year.
The company had a busy year on the supply chain front and opened its Shanghai sourcing office in August, marking the next phase of its drive towards a faster, more responsive supply chain to underpin its plans for international, multi-channel growth.
It also managed to maintain market share during the past 12 months it said, citing Kantar data, even though the market was tough. The second half of the year saw a deterioration in the clothing market and a corresponding increase in promotional activity. But it managed seasonal stocks, particularly in womenswear, including selected promotional activity, and ended the year in a clean seasonal stock position.
But despite that promotional activity, selling more goods at full price is a key aim and the company said its customers have responded well to its A Match Made in Debenhams ad campaign, which is designed to support full price trading.
This season it features supermodels Helena Christensen, Eva Herzigova and Yasmin le Bon as the faces of Principles by Ben de Lisi, Star by Julien Macdonald and Nine by Savannah Miller respectively.
For the coming year, Debenhams is continuing to grow its non-clothing categories and capitalise on its market leadership in destination departments such as beauty, gift and occasionwear, while reducing options in seasonal categories such as outerwear, which it did successfully in the past year.
Debenhams is also now working to boost its interiors offer and is launching lighting in 30 stores this season, while rolling out furniture "hubs" into eight stores, with the opportunity in this category supported by its launch of 0% interest credit last year.
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