Is Debenhams just dad-dancing towards digital?

Profile picture for user slauchlan By Stuart Lauchlan April 23, 2017
Summary:
Debenhams is in decline and pinning its hopes on Social Shopping - aka mobile-heavy, omni-channel retail with an emphasis on selfies!

debnhams bag
A destination, digital and different.

A new e-commerce venture? An online disruptor breaking onto the retail landscape?

No, that’s what we’re now - apparently - going to see Debenhams as.

Yes, that’s Debenhams, second only to Marks & Spencer as the cosy, reliable bet for Middle England shoppers on the high streets of the UK. It’s a brand that has its roots back in the 18th century when Wiliam Clark opened a drapers store in London. It morphed into Clark and Debenham in 1813 after William Debenham became a partner, before becoming Debenhams Ltd in 1905.

Flash forward to 2017 and the firm boasts 176 stores around the UK as well as a further 82 in 26 other countries and remains one of the best recognised retail brands in the UK. It’s also in a lot of trouble, under pressure from the rise of the likes of Amazon as well as the lower-cost fashion retailers, such as Zara, H&M and Primark. Despite investment over the years in cultivating its own designers, Debenhams is looking its age.

Hence the makeover announced by CEO Sergio Bucher, drafted into the hot seat from Amazon’s fashion arm back in October last year. He launched a strategic review of the company and its existing business model, the results of which were announced last week.

The future for Debenhams - or the hoped-for-future at any rate - is to be built in large part on mobile technology and what the company calls Social Shopping. There were indicators of this shift earlier this month when Debenhams chairman Ian Cheshire told the audience at the World Retail Congress that is was inportant for all retaiers to adapt to mobile-savvy shoppers:

The next generation is behaving differently, spending differently and interacting differently. To them it is experience, not stuff that matters.

The pivot in Debenhams strategy then is around mobile. The strategic review notes:

Mobile phones are being used in all channels, not just online, as they become an integral part of everyday life. Our 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)…The mobile phone is front and centre of how our customers interact with each other and it is the enabler for Social Shopping.  We will invest in an upgraded mobile platform that will help us unite channels and connect better with our customer.

This mobile platform - unspecified so far - will be the enabler for what Debenhams pitches as Social Shopping:

Looking at the way our customers are shopping for fashion and beauty and interacting via their mobile phones, we see an opportunity for Debenhams to be the leader in what we define as the new "Social Shopping": shopping as a fun leisure activity enjoyed with friends and family and shared via social media.

We will give our customers more reasons to come to 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. We score well on many metrics compared with competitors but can do better to encourage frequency of visit.

We will create an environment both online and offline that is engaging and inspiring, with great service, and a shopping journey that is convenient and reliable so they will want to come back to us more often.

We want them to share the experience, whether by visiting stores with friends and family to shop, use our services, eat and drink or attend events - or via social media.

It’s a strategy that is very digitally-focused:

Digital is the engine of growth in the UK and a significant opportunity overseas. In order to give us the capability to deliver our strategy, we intend to invest in upgrading our technology platform. We will unify our business via mobile, "mobile @everywhere", to connect with our customers via the device they always have with them.

There will be an expansion of existing digital offerings:

Click & Collect has become an important part of our business, with over 30% of online transactions picked up in store. We see an opportunity to evolve this experience from being functional and reliable to make it also engaging and sociable, linking it with other services, such as personal shopping, to reinforce our ambition in Social Shopping.

And there will be an increased willingness to get into bed with rivals, such as Amazon, to expand the online footprint:

Digital distribution allows us to reach a different customer demographic, for example, that might not otherwise shop with us. We have had good success in selling via other online partners both in the UK and internationally. There are obvious opportunities to increase our digital distribution both through our own infrastructure and via strategic partnerships. For example we are launching on Amazon.de next month.

The real estate issue

A big problem for Bucher is the Debenhams real estate. We’ve written a lot over the past few months about the omni-channel challenge facing ‘legacy’ retailers to get the balance right between their offline stores and an online business. Many have struggled to get this balance right, resulting in the likes of Macy’s selling off flagship stores that are now worth more as commercial property than as retail outlets.

For Debenhams, there’s actually very little room for manoeuvre here in the short term as the company is locked into long store leases, averaging around 20 years. So a major cull of stores isn’t really an option. And there’s a salutary warning here in the fate of BHS, that other doyen of the UK high street which also had a similar set of binding leases in place when it went into liquidation last year.

What happens at Debenhams in this respect is still a work-in-progress:

Over the next five years we will review for closure up to ten UK stores should they not meet our return objectives and will also exit some non-core international markets. We intend to test the conversion of some smaller UK stores into Outlets, and will invest in upgrading those stores in major shopping destinations and remerchandising the remainder of the store estate.

So for Bucher, that elusive balance between online and offline remains aspirational:

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. We will be a destination for "Social Shopping" with mobile the unifying platform for interacting with our customers. 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.

My take

I can’t remember the last time I made a purchase in Debenhams. As George Salmon of analysts Hargreaves Lansdown notes, it’s good that Bucher is ramping up online focus, but Debenhams has other issues to overcome:

Too many shops are tired and cluttered, while in-store sales are going backwards. The group will look at closing a handful of stores, but many are on long-term leases which would likely attract substantial costs to break from. Giving the stores a refresh, and generally trying to improve the experience of being in a Debenhams seems like a sensible option to us.

The rationale behind the Social Shopping strategy is full of all the right words for an omni-channel age - digital, different, destination - but I’d another term to that list - dad-dancing - an ageing brand aching to be on the cusp of modernity and dancing slightly out of time in the process.

Debenhams is an old and trusted brand, but it’s the first of those descriptors that is the real problem here. If Social Shopping works out, then the idea is that essentially that Middle England’s shoppers will be wandering the beauty halls, taking selfies and posting them out on Instagram and Twitter. Well…maybe, but looking round my local branch at the weekend, I’m not convinced that the clientele are up for that.

Or as Salmon puts it:

While we feel that [Bucher] has identified many of the right issues, investors should remember that it's one thing to diagnose the disease and quite another to successfully apply the cure