Worrying times ahead for Debenhams | City & Business | Finance



Lower like-for-like sales and weaker profits are bang on trend in UK high street retail at the moment. 

Marks & Spencer, House of Fraser and Poundworld are just three names where poor trading is forcing closures. Sources of the difficulties are well-documented. 

Doubts hang over the UK economy, and the rising cost of living has put pressure on consumer spending power.

There’s also the decline in high street footfall, and the fact online specialists like ASOS and Amazon are hoovering up an ever-higher percentage of our cash. 

While Debenhams isn’t alone in facing difficulties, investors can’t ignore a third profit warning in less than six months, and the shares have lagged well behind peers in the sector. 

So, what else is going wrong? A major problem for Debenhams is its lack of flexibility. 

Most of Debenhams’ stores are tied into long leases, tying it to a large and increasingly empty store estate. 

As a quick fix, Sergio Bucher is filling up excess space with gyms and eateries. 

Sub-letting space provides extra income, but browsing for cardigans and pumping iron don’t really go hand-in-hand. 

Longer term, the group aims to digitalise its offer. 

Progress in recent years has been very encouraging, but the online business still contributes less than 20 per cent of group sales. 

With plenty of work left to be done before Debenhams gets to where it needs to be, the decision to cut next year’s investment budget by around £20million raises an eyebrow. 

Having to scale back a turnaround strategy before it’s really got started isn’t encouraging. 

If Debenhams can deliver a recovery on a shoestring and avoid cutting the dividend, that’ll be all the better for investors. 

But these are worrying times for the group. 

Getting the restructure right, rather than cutting corners to prop up the dividend, should be the priority.


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