Debenhams to axe 50 stores across country as it reports £491m loss

Embattled retailer Debenhams has confirmed that it is close a third of its 155 stores over the next five years.

The company has reported a £491m loss – the biggest in its history as operating profits fell by 65% from £95.2m to £33.2m.

The dramatic shift in the retail sector has forced Debenhams to take drastic action and it has announced it is closing 50 stores.

The future of a further 20 stores is under review and their future will be decided over the next five years.

Debenhams has not yet announced where the closures will come but up to 5,000 staff will be affected.

The chain has branches in most of the towns and cities in the North West with its two key stores in Manchester city centre and Liverpool One.

A series of cost-cutting measures have been identified and Debenhams is in discussions with its landlords about reducing rents.

The news follows the takeover of House of Fraser after it fell into administration and the collapse of a number of High Street brands.

House of Fraser announced last week it is to close its store on Deansgate in Manchester after Christmas.

House of Fraser

Chief executive Sergio Bucher said: “It has been a tough year for retail in 2018 and our performance reflects that.

“We are taking decisive steps to strengthen Debenhams in a market that remains volatile and challenging.

“Working with our new CFO Rachel Osborne, and the board, I am determined to maintain rigorous cost and capital discipline and to prioritise investment to achieve profitable growth.

“At the same time, we are taking tough decisions on stores where financial performance is likely to deteriorate over time.

“Debenhams remains a strong and trusted brand with 19m customers shopping with us over the past year.

“Our transformation strategy is gaining traction, with positive results from new product and new formats, general acclaim for our store of the future in Watford and digital growth that is outpacing the market. With a strengthened balance sheet, we will focus investment behind our strategic priorities and ensure that Debenhams has a sustainable and profitable future.”

Debenhams will attempt to take £130m of costs out of the business, including suspending its dividend.

Sales for the year also slipped 1.8 per cent to £2.9bn while like-for-like revenue fell 2.3 per cent.

Mr Bucher said: “I promise my 26,000 staff that we will try to protect as many jobs as we can. As our numbers show, we are a publicly solvent business.

“We’re here to create a thriving high street and thriving shopping centres

“We’ve been working very hard over the last 12 months to land a lot of exciting new products.”

The firm said it identified five priority actions in April that would help to mitigate the effects of the volatile marketplace.

Further measures have been announced:

• Further cost savings of at least £30m, annualizing to £50m by 2020 – in addition to the annualised £20m already being delivered

• Confirming Capex reduced to £70m – approximately half the level of 2018 – including continuing development spend, and focusing future investment in priority elements of our Debenhams Redesigned strategy

• In line with previously stated intention to retain cash and reduce debt within the business, no final dividend will be paid

• Comprehensive review of portfolio under way, prioritising investment in 100 stores and closing up to 50 stores over 3-5 years, compared with the 10 previously identified

• Further additional space and rent reduction plans

• Plan to assess returns on new format stores over peak to inform roll-out plans: update on store estate programme in April 2019

• Strategic review of non-core assets announced in June is ongoing

Russ Mould, investment director at Manchester investment platform AJ Bell, said: “The retailer has done a kitchen-sink job by writing down the value of assets and cancelling the dividend.

“None of this should be a surprise given such actions are standard practice when a new finance director joins a troubled business.

“Debenhams hired former Domino’s Pizza chief financial officer Rachel Osborne two months ago and she has clearly wasted no time in getting the books in order.

“Accompanying this news is more clarity on the restructuring plan which includes reduced capital expenditure and more cost savings.

“While store closures and rent reduction plans are natural steps to take, you have to ask whether Debenhams is really shrinking to greatness – such is the term to describe businesses which become leaner and meaner – or whether it is like a bath bomb which slowly fizzes away to nothing.

“Chief executive Sergio Bucher is trying to revitalise the business as a sociable shopping experience. A new store format has been launched which includes a beauty hall, the ability to have a facial, or even enjoy a gin and tonic.

“This approach should make visiting its stores a more pleasurable experience for many people.

“That said, you still have to remember that the name of the game with retail is to get people spending money and the tills to be constantly ringing.

“Debenhams must also not forget the online channel which is perhaps the key reason why it is in a pickle in the first place.

“The department store concept has become far less relevant in an age when consumers can buy pretty much anything they want via their mobile phone or computer.

“Retailers are increasingly using their stores as showcases for products, as well as stocking the core ranges, with shoppers finding a greater range of items online.

“Debenhams is planning for digital to account for 30% of its business in the future, versus 20% at the moment.

“One has to think whether this 30% target is too low given the structural shift in the market towards online sales.

“For example, last month retailer Next said its online division accounted for 45% of group sales and that was the fastest growing part of its business.”