The department store chain saw like-for-like sales fall 3.6% in the six weeks to Christmas, with group like-for-like sales down 2.4% in the UK. In the 18 weeks to January, transactions declined 5.6% with like-for-like sales down 5.7%.
On the plus side, after a slow start, group digital sales rose 6.0% in the 6 week period over peak against a strong comparative performance, delivering two year growth of over 20%.
But poor performance over the holiday period led to Mike Ashley, the outspoken owner of Sports Direct and the holder of 29.7% of Debenhams stock, losing patience and teaming up with Milestone Resources, another major shareholder, to vote Bucher off of the board by 55.85% to 44.15%.
Bucher, who was brought in in 2017 from Amazon to execute a turnaround at Debenhams, does remain the CEO, reporting to the board. Chairman Ian Cheshire has also stepped down with immediate effect. The board insisted that it retains “full confidence in Sergio and in the management’s plan to reshape the business”, stating:
The board believes that it is in the best interests of Debenhams plc that the executive team remains fully focused on delivery of the plan. In the meantime, the board remains open to constructive suggestions from shareholders that are in the interests of the business as a whole.
Prior to the boardroom bloodletting, Bucher had pitched a 'keep on going' message to the market:
We said that we didn’t expect any help from the market and that has proved to be the case. We have worked hard in difficult markets to deliver the best possible outcome.
Store footfall has been weak across the industry. In our case this has been mitigated in part by good online growth with driven by improved mobile conversion, particularly in the 6 weeks up to Christmas despite being up against tough competitors.
He insisted that Debenhams was making progress on its move to what he's dubbed 'Social Shopping':
We’ve been above the market…The like-for-like was substantially stronger. Over the two year period our growth has been 20%, which I think is a very encouraging number. What is important to focus on is whether we are growing in this market. Are we gaining share? I want to make sure we grow a healthy online business fo the future.
In interviews with media, Bucher also pointed to the burden of UK business rates as a negative factor impacting on Debenhams and putting ‘legacy’ retailers at a competitive disadvantage to the likes of Amazon. Debenhams paid £80 million in business rates last year on sales of £2.3 billion. In contrast, Amazon paid £63 million on sales of £8.8 billion. Amazon’s bill was calculated on 94 buildings, mostly office space and out-of-town storage and warehouse facilities, not high street stores. Bucher said:
The only thing that we are asking for is a level playing field to allow us to invest in our business in the same way other people can. With a calculator you can do the maths to see the difference between Amazon paying £63 million in business rates on £8.8billion in sales and £80million business rates paid by us on £2.3 billion in sales.
Debenhams has embarked on the closure of 50 branches over five years (out of 165 shops) and the launch of a new store design concept. Bucher noted that the new-format stores had outperformed other physical outlets:
People who come through the door spend more money….our challenge is to get people to come through the doors…We need to have fewer stores with a bigger online platform and we need to make shopping fun again. We focused on going as fast as we can on that.
But he added when asked what he would have done differently in recent months:
What I would have done is to go faster with our strategy.
Meanwhile at M&S...
While Debenhams turmoil dominated the headlines, rival Marks and Spencer (M&S) also announced a mixed bag of data. Total clothing and home sales at M&S were down 4.8% in the 13 weeks to the end of December, although online sales grew by 14%, driven by improvements to the website and investment in logistics.
CEO Steve Rowe admitted that November had seen a substantial drop in both footfall and online traffic. But he insisted that it was time to “hold our nerve” and stick to the plan for transformation, which includes controversial policies, such as a refusal to participate in Black Friday or the growing online grocery sector:
The movement online is really what we predicted. We’ve started to make improvements to the website, particularly around photography, search optimization and importantly around the product download pages where we saw speeds come down by more than a third. We’ve seen some increase in traffic, but the important thing for us is conversion, where we have more customers spending when they are on the site. But basket size is down and we’re seeing the same trend as everyone else, where returns rates are marginally up.
As for the home delivery, online grocery opportunity, Rowe remains resistant:
We are very, very clear that there is a long term trend towards online shopping, particularly in clothing and home and food, and we continue to watch that very carefully. But you’ve got to remember that we have a very different shopping mission. [Our food business] is done for today/tonight…and we are big in travel destinations, like airports and train stations. Our proposition at the moment is not appropriate for online.
Despite the ‘good news, bad news’ vibe and perhaps in part because of the shenanigans over at Debenhams, M&S saw its share price rise on the back of ‘not as bad as it could have been’ sentiment among investors.
A bloody day on the UK high street with Debenhams seemingly still in terminal decline. I remain uncomfortable with Bucher’s ‘make shopping fun’ mantra which still resonates as a contrived soundbite rather than a coherent strategy.
M&S continues to suffer from its bizarre antipathy to building an online grocery business, but otherwise there are signs that the shift to online focus is paying off, with around 22.5% of total business now coming from digital channels. But the share price rise yesterday needs to be seen in context - not being as hopelessly bad as one of your rivals isn't a long term strategy.
Overall, a sluggish start to 2019 - and with less than 3 months to go to an increasingly uncertain Brexit outcome, there’s likely much, much worse to come. The omni-channel retail laggards are running out of time.