Debenhams shows signs of revival

Debenhams’ latest sales figures seem to show signs of a revival for the ailing department store chain. In its annual results, published last week, the company’s like-for-like sales had improved 2.1% since the start of September and its profits over the year rose 11%.

It is the first indication that Debenhams may have turned a corner after what has been the most turbulent period in the retailer’s history. But any confidence among experts that the upturn can be sustained is laced with caution, not least because the predicted consumer credit squeeze will have a negative impact on retail sales across the board.

Founded in 1813 by Thomas Clark and William Debenham, the company traded as an independent until 1985 when it was bought by the Burton Group. In 1997, Debenhams was demerged from the Burton Group and listed on the London Stock Exchange in 1998.

In December 2003, Debenhams was acquired by Baroness Retail Limited, a company indirectly owned by CVC Capital Partners, Merrill Lynch Global Private Equity and Texas Pacific Group. Debenhams was then refloated on the stock market in the summer of 2006 at a price of 195p a share. Last week, following what was the most upbeat news from the group in 18 months, shares were sitting at about 104p.

Some observers hold up Debenhams as an example of what can go wrong when well-known brands are taken over by private equity money. They argue that there has been a lack of investment in the stores since the deal, but Andrew Wade, retail analyst at Seymour Pierce, disagrees with those who think Debenhams is being “pumped up” for market.

He points to Halfords as an example of a retailer whose share price has risen (from 265p when relisted in 2004 to 350p today) after similar private equity treatment – under the same management team as Debenhams.

In Debenhams’ case, the trend towards “fast fashion” and the resurgence of Marks & Spencer have had a significant impact on the retail market. Debenhams has been slow to respond, say experts, pointing out that too many “promotional” days and, crucially, poor products alienated consumers.

Playing catch-up
Verdict retail analyst Carol Ratcliffe says: “If you look at retailers like Marks & Spencer, which has invested so much in its stores and really raised the game. Debenhams has got to catch up with its rivals.”

To achieve this, chief executive Templeman is refitting the chain’s 135 stores and the locations already refurbished are posting sales increases of 10%.

An advertising campaign, created By Miles Calcraft Briginshaw Duffy, also seeks to reposition Debenhams as brighter, fresher and equal to its competitors. The badly needed store refits will see an end to the cluttered, confusing retail spaces and in-your-face promotional signs. New, younger brands such as Ted Baker have been introduced and a good reception to its autumn/winter offering would seem to indicate that Debenhams has at last got the product right. In addition, the company says it is committed to improving product quality, increasing marketing activity and boosting its online offering with the launch of a new website.

But despite the signs of optimism, Wade warns: “We haven’t really seen things improve that much. Current trading has improved, it is doing the right things, making the right noises but we haven’t really seen any sustained turnaround.”

The market will be watching closely to see whether Debenhams can maintain its recent growth just as consumer spending looks set to decline.

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