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Debenhams administration crisis: Industry reaction

Administrators have been appointed to Debenhams as the retailer rejected Mike Ashley’s latest rescue bid which would have seen him become chief exec.

Lenders have taken control of the business and will look to sell it on, meaning Ashley’s 29% stake, which cost the tycoon around £150 million, will be wiped out.

The struggling department story continues to operate, with all 166 stores trading as normal, although around 50 stores had already been preparing to close in the coming years.

Digital transformation

Debenhams issued three profit warnings last year and has accrued debts of well over £600 million. The CEO of Debenhams, Sergio Bucher, and chairman, Sir Ian Cheshire were voted off the board back in January and it's problems continued to spiral. Many in the industry believed the department store had failed to transform quickly enough, despite a new brand identity and improvements to store design last year.

“The whole problem with Debenhams is that it’s been too slow – online is not a new phenomenon and they haven’t had the right solutions and they’ve hung on to the store for too long,” Catherine Shuttleworth, CEO of Savvy, told Essential Retail. “They should have invested in digital more significantly than they have done, when they recruited Sergio Bucher [to CEO] that was a good recruit on paper, but it was too late.”

Shuttleworth warned that there are very few high-street retailers immune from the change to shopping and the move to eCommerce. “You need to have an online proposition and a retail estate that suits your customer base,” she added, pointing to Primark which does not sell online, but this week is opening a five-storey shop in Birmingham with a hairdresser, restaurant and significant Disney partnership. “But Primark has a retail estate that fits a purpose with a huge rotation of stock.”

She concluded: “Retail is about selling the right product, at the right place, at the right time, to the right people – Debenhams has sort of forgotten some of those aspects of the retail mix.”

Sofie Willmott, senior retail analyst at GlobalData, agreed. She said: “Although Sergio Bucher’s Redesigned strategy, announced almost two years ago, addresses the retailer’s problem areas, it has not been rolled out fast enough and as a result most consumers have seen little change at Debenhams, other than a minor adjustment to its logo.”

Tim Williams CEO of YR, said Debenhams had lost its relevance: "The future of fashion is, like in every industry, now focused on technology. For example, technology to reduce over supply, making supply chains faster, creating smaller niche product lines for increasingly diverse consumers. Giving consumers relevant experiences in store or on their own devices is key to making the sale, making it fun, giving people reason to be loyal to a business. Through being more relevant to your customer and always evolving, you gain more loyalty and increased spend and your customer stays with you. Debenhams has lost almost all relevance and offered nothing unique to their customer. It's a sad day but has felt inevitable for some time."

Competitive retail landscape

Meanwhile, Leigh Moody, UK managing director at SOTI, said retailers should be using this as a wake-up call. “The news [about Debenhams] serves as a stark reminder that brick and mortar retailers urgently need to adapt in order to survive in today’s competitive retail landscape. A combination of increasing rents and business rates, along with consumers taking their shopping online, has resulted in the demise of a number of established retailers.

“These retailers are struggling to survive because they are falling behind the tech trend,” continued Moody. “Rather than competing against the online world of eCommerce, retailers should be adopting the right strategies to complement it and accommodate changing shopping habits. If store retailers want to remain competitive in today’s volatile climate, they need to be agile and adopt systems that make online to in-store transactions seamless. Retailers must consider integrating a mobile-first strategy across their entire on and offline operations to streamline the value chain, from supply to distribution to shop floor. They should be offering personalised services, and mobilising retail staff through technology to streamline intelligent customer interactions.

Meanwhile, Michael Rolph, CEO of Yoyo Wallet, says these eCommerce competitors have the upper hand: “The online retailers have been kicking ass right under the high street’s nose quite simply because they’ve provided a better logistical experience, ensuring that consumers get the items they want in a more timely manner. This becomes more and more pertinent for the high street now because, 20 years on, online retailers are really beginning to perfect these experiences.”

He added: “Just think of how we now choose to watch something on Netflix – all those programmes we watch have been recommended to us based on what we’ve viewed historically. This is exactly the type of competitive advantage that online retailers now have against the high street – they know who they’re customers are, they know what they’re looking at, and they know when and what the customer has historically bought with them.

“Until we see this level of insight around all transactions in the physical world, high street retailers simply won’t have a chance.”

Jat Sahi, consulting industry lead for retail at Fujitsu, said retailers need to turn their operations “inside-out” in order to keep up with the fast-moving digital landscape.

“Retailers need to be led by consumers, rather than imposing a generic line of products and a uniform approach to store layouts. The best people to ensure this happens are those who serve the customers every day – the shop floor staff. They understand the daily desires of their shoppers from what stock to order and when and how to lay it out that will make the most sense for their customers. If staff are given the time and headspace required to engage and inspire shoppers, they can make decisions that will drive actual positive change in the store.”

Sahi added: “These decisions may be transformational or drive marginal gains that compound, but in retail like so many areas being just a few percentage points better than competitors can mean that you win a disproportionality larger share of customers. Retailers can create a shop floor that ultimately serves the customers they are trying to reach, and ensure that the high-street remains fit for purpose for generations to come.”