Debenhams refocuses promotional strategy after drop in first half profits
Debenhams has said it is to refocus its promotional strategy following a challenging first half when profits dropped by 24.5%.
In the 26 weeks to 1 March 2014, pre-tax profit fell to £85.2 million from £112.8 million in the same period in the previous year.
While like-for-like sales rose by 1.5% with revenues climbing by 1.7% to £1.30 billion, profits were impacted by the retailer being forced to introduce higher levels of markdowns in an effort to clear stock in the post-Christmas trading period.
Debenhams said its UK market was “challenging and competitive” throughout the first half and that clothing sales were below expectations, largely due sales targets based on a strong performance last year being exacerbated by a weaker market in September and October.
The retailer said its promotions in the run-up to Christmas were diluted by a highly promotional trading environment in the UK and that rivals with “better developed multi-channel models” had benefited from shopper’s increasing desire for convenience.
As a result, Debenhams is now planning to revise its promotional strategy to include more clearly defined promotional periods with fewer days on promotion. It will also offer a range of premium delivery options over the course of the next six months in time for peak trading in 2014. This will include next day Click & Collect and extending the cut-off for next day delivery to home from 2pm to up to 10pm.
Other plans include adding more choice of products, brands and services and ensuring that every store has at least one restaurant or café by this time next year.
Meanwhile, Debenhams’ international business saw its gross transaction value grow by 6.8% to £299.1 million in the period as a stronger profit performance in Magasin du Nord and the franchise business was offset by lower profits in the Republic of Ireland stores. This resulted in international EBITDA increasing by 0.4% and operating profit by 0.9%.
The total number of international stores stood at 82 at the end of the first half compared to 79 a year earlier. This included 65 franchise stores and 17 owned stores across 27 countries.
Debenhams chief executive Michael Sharp said: “Whilst this has been a challenging first half, we are clear on the issues and are taking decisive action to address them. In particular we are focused on building a more competitive multi-channel offer for our customers and improving the operational effectiveness of the overall business.
“The Debenhams brand remains strong with sales continuing to grow and a resilient market share performance. Whilst we remain cautious about the strength of the UK consumer recovery, I am confident the changes we are putting in place will provide a better customer experience and, over time, stronger results for our shareholders.”
