Debenhams overhauls promotions strategy as discounting cuts margins
Debenhams is to cut back on the number of sales it runs after deep discounting over Christmas and the new year hit margins and sent profits tumbling by almost a quarter in the first-half of its financial year.
The department store chain has followed the profit warning it issued in January by announcing pre-tax profit fell by 24.5 per cent to £85.2m in the 26 weeks to 1 March. Profit from its core UK business fell even more steeply by 28.4 per cent.
The slump in profit came despite a 1.5 per cent increase in sales from stores open for a year or more as in-store promotions drove higher sales but at lower margins.
In response Debenhams has decided to curb the “sea of red” in its stores chief executive Michael Sharp talked of earlier this year by “refocusing” its promotional strategy. It will now have more “clearly defined promotional periods” and fewer days when products are on sale.
“Promotions are a traditional strength of Debenhams but in the run up to Christmas their impact was diluted by the highly promotional trading environment in the UK,” the company says in a statement.
Elsewhere, Debenhams has expanded its multi-channel offering including next day click and collect and an extension of the cut-off for next day delivery from 2pm to 10pm. It has also vowed to “strengthen” its mobile commerce platform.
Liz Faulkner, a consultant at retail analysts Conlumino, says changes to its promotions and multi-channel strategy could pay dividends.
She adds: “With first half profits down by a quarter, as expected, these results have not been a very positive set for Debenhams. However, learning has been taken and is being acted upon, with commitment to improve multichannel efficiencies and better manage promotional activity being laudable.
“In a highly competitive marketplace with multichannel behemoths like John Lewis and Next, Debenhams’ market will remain challenging, but with continued initiatives bringing its brand-led proposition up to speed it isn’t out of the race quite yet.”
Separately, figures from the British Retail Consortium released today (15 April) show same store sales across the retail sector fell 1.7 per cent in March after several consecutive quarters of growth. The dip was blamed on tough comparisons with 2013 when Easter fell in March. Food sales in particular suffered, down 2.7 per cent.
