Debenhams CFO Steps Down as Sales Lag Rivals
The chief financial officer (CFO) of the UK’s second-largest department stores group has stepped down after trading updates showed the group’s sales falling behind those of its main rivals over the crucial Christmas trading period.
The departure of Simon Herrick from Debenhams follows a profit warning from the group two days earlier, its second in less than a year, after the company admitted its margins had been squeezed by heavy discounts that nonetheless failed to spark a late surge in festive shopping.
Debenhams blamed a 25% cut to its first-half profit forecast on an unprecedented industry-wide outbreak of Christmas promotions that left many UK retail centres offering deep discounts, as well as mild autumn weather muting demand for warm clothing and continued pressure on household incomes.
But some analysts said Debenhams has struggled more than most due to its weaker online offering, reliance on discount offers whose impact may damage its image over time and own-brand ranges that lack the cachet of labels found at rivals.
Debenhams stores have also failed to keep pace with the more modern outlets of John Lewis, the UK’s biggest department store group, which has outperformed competitors in recent years due to its strong web presence, attractive stores and more affluent customer base focused in southeast England.
Trading updates from employee-owned John Lewis and smaller rival House of Fraser (HoF) contrasted with Debenhams, with both posting record Christmas sales on the back of strong demand for more premium fashion and electrical items and growing online trade. Against like-for-like sales growth of just 0.1% recorded by Debenhams over the 17 week period to 28 December, HoF reported 4.3% and John Lewis 6.9% in shorter reporting periods of nine weeks and five weeks respectively to the same end-date.
“With a price-matching promise instead of a discounting strategy on branded products and only infrequent planned discounting on its private labels, John Lewis does not devalue its product offer,” said analyst Kate Ormond at research group Verdict.
Despite discounts on some products of 50% in the run-up to Christmas, Debenhams said prices would be slashed further in January and February to shift stock, knocking 80 to 100 basis points off its gross margin for the first half.
Debenhams, which marked its 200th anniversary in 2013, made around 16% of sales online, against 32% for John Lewis in the most recent trading updates. John Lewis also has far fewer UK stores, with 40 to Debenham’s 156. The company said a search to find a replacement was underway and Neil Kennedy, Debenhams’ director of finance, will assume the CFO role on an interim basis.