Debenhams has a strong presence in key product categories including womenswear, menswear, childrenswear, home and health & beauty and offers its customers a unique and differentiated mix of brands. It has growing multi-channel and international businesses.
Having opened our doors in 1778, we are proud of our British heritage and our role as one of the UK’s leading department store groups. There are lots of growth opportunities in the UK.
We are driving sales ahead of modernisation by focusing on basic retail standards and improving choice. See our strategy in action
18 stores were modernised in 2012. All remaining uninvested core stores will be modernised by Christmas 2014. See our strategy in action
New stores in the UK could provide an additional £1 billion of sales. The pipeline stands at 18 stores over the next five years. See our strategy in action
At the end of 2012, there were 30 uninvested core stores in the UK portfolio of 154 stores. All of these stores, none of which is lossmaking, will be modernised over the next two years but we are taking action ahead of this to improve their performance and to put these stores in the best possible position to benefit from modernisation. This action is a question of focus rather than incurring additional costs or capital spend.
Amongst the initiatives we take are reviewing management teams, undertaking space optimisation work to ensure each product category trades from an appropriate amount of space, replacing choice that may have been lost through concession closures over the past few years and improving presentation standards. In some cases we hold a pre-modernisation sale to drive sales and counteract the impact of disruption from modernisation work.
In 2012 we started to see an improvement in the performance of the uninvested core stores as we undertook these actions. We will continue to pursue this programme until all these stores have been modernised.
154UK stores at the end of 2012
10.9mTotal UK trading space (sq ft)
We operated 154 stores in the UK at the end of 2012, trading from a total of 10.9 million sq ft. Our stores vary in size from 13,000 to 200,000 sq ft and are located in high streets, town shopping centres, regional shopping centres and retail parks.
We modernise stores for a number of reasons: to meet customers’ demands for a modern and contemporary place to shop; to improve perceptions of the Debenhams brand; to improve choice to suit the needs of local markets; and to build a stronger relationship with our international brands and concessions. Our thorough planning process, expertise in implementation and strong capital discipline result in a modernisation programme that is delivering increases in sales and market share and a good return on investment.
It is not just as case of improving a store’s infrastructure: in order to achieve acceptable returns, store modernisations need to give customers something different. We add new product offer through additional brands and categories. We remix space based on performance, ideal adjacencies and ease of shopping as well as the Group’s overall strategy. We invest in the health & beauty department. We reclaim space from back-of-house where possible and we upgrade restaurants, WCs and other services.
In 2012 we modernised 18 stores in two tranches, one starting in January and the second in May, and spent some £32 million in total, averaging £20-25 per sq ft. This was the most stores we have ever undertaken in a single year.
The 32 stores which have been modernised over the past two years are performing well. On average these stores have recorded a sales increase in the first year after completion of c.6%. It is particularly pleasing to note that for those stores which have completed two years since modernisation, we have seen a sales uplift in the second year of an average c.1.5%. Previous modernisation programmes have generally achieved a one year increase, after which stores perform in line with the rest of the estate. We believe the second year uplift is due to the extensive nature of the modernisation work we are undertaking as well as being a function of the investment in health & beauty which can take more than 12 months to translate into higher sales. Return on investment is averaging 15%.
The remaining 30 uninvested core stores will be completed in time for Christmas 2014 with 15 taking place in each of 2013 and 2014. Amongst these is Oxford Street which will be transformed inside and out by October 2013. It will become a true company flagship, showcasing the best of everything that Debenhams has to offer and a beacon for international expansion.
18Store modernisations in 2012
30Modernisations over next two years
We are transforming our UK portfolio by modernising all uninvested core stores. 32 have already been completed. The remaining 30 will be completed by Christmas 2014, including Oxford Street.
Debenhams is one of very few UK retailers with a space expansion strategy. We believe we could operate up to 225 stores in the UK, an increase of 70 stores over the current estate. These stores could add £1 billion of sales and offer economies of scale which should provide margin enhancement over time.
Stores will continue to be the largest channel for the majority of customers despite the expected growth in online shopping. As such they form a key component of the multi-channel shopping environment and we know that customers who live near a store spend more online.
We have a strong track record of creating value from new store openings. The 35 stores opened since 2007 have delivered an average return on investment of c.40%. We employ robust acquisition criteria to ensure every new store has the right location, the right developer, the right type and size of store and the right deal so that it can achieve these superior levels of return.
Of the 70 potential opportunities in the UK, at the end of 2012, 18 were contracted and are expected to open in the next five years. These stores total 845,000 sq ft of trading space and have predicted sales in excess of £150 million at maturity. One has already opened (Chesterfield in September 2012) with Lichfield due to open in March 2013.
Discussions are ongoing on another 25 opportunities.
18New store pipeline
£150mPotential additional sales from pipeline
We have a track record of delivering strong financial returns from new stores. The average return on investment of the 35 stores opened during the last five years is c.40%. New stores could add £1 billion of sales in the UK.
Our customer proposition is based on a unique, differentiated and exclusive collection of brands, products and categories within a wide price architecture.
We offer our customers a unique, differentiated and exclusive collection of brands, products and categories. See our strategy in action
Raising standards of visual merchandising and product presentation reinforces Debenhams as a modern and contemporary place to shop. See our strategy in action
Our marketing and PR activities are fully joined up and we are speaking with one voice across all media under the banner of “Life Made Fabulous.” See our strategy in action
Our brand and product strategy gives customers a unique, exclusive and differentiated choice. It is unique through the combination of own brands, international brands and concession brands. It is exclusive through our core own brands and Designers at Debenhams which together account for half of everything we sell. It is differentiated through Designers at Debenhams, which two-thirds of our customers tell us is an important reason they shop with us.
An area of focus in 2012 has been the further development of our non-clothing business, particularly in areas such as health & beauty, footwear and accessories where there is clear market share momentum. Non-clothing sales accounted for 49% of total sales during the year, providing the balance and resilience which is an inherent strength of the department store model. We are targeting further growth in non-clothing sales and market share going forward.
Newness and product innovation are key to delivering a compelling customer proposition. We added several new brands to the portfolio in 2012 . These include: No.1 by Jenny Packham, a glamorous new occasionwear range by one of the UK’s best designers; classic American menswear brand Nautica which is now available in the UK exclusively at Debenhams; footwear brand Call It Spring; and the extension of the Edition Designer concept into home through Ashley Thomas, Yukari Sweeney and Carole Lake. New launches for 2013 include Marios Schwab in womenswear and Donna & Mark in childrenswear.
Looking forward, we will drive growth by investing in our differentiated own bought strategy. In particular, trials in Red Herring, Principles by Ben de Lisi and the footwear division will be aiming to replicate concession sales densities at own bought gross margins. This requires end-to-end investment, from buying and merchandising to supply chain to marketing to instore resourcing.
26Designers at Debenhams brands
£552mDesigners at Debenhams 2012 sales inc VAT
Designers at Debenhams is an exclusive portfolio of diffusion brands designed by some of the UK’s leading fashion designers. Our medium-term target for Designer sales is £750 million.
Good visual merchandising and product presentation are key to creating an exciting shopping experience. Historically, our standards have been inconsistent across the store estate and they need to improve. Creating great looking stores must be a core competence for the retail community.
We will achieve this by defining standards of merchandising and presentation for each season in regional “model” stores and cascading them through the estate, thereby ensuring that every store team understands and is equipped to deliver these standards. Excellence will be rewarded on a regional basis.
Standards are complemented by increasingly strong instore graphics and displays which reflect the overall marketing and advertising themes, giving customers a clear communication trail to follow from advert to store window to instore collateral to ticketing.
49%2012 sales mix of non-clothing categories
40bpsIncrease in women’s footwear share
Non-clothing categories accounted for almost half of everything we sold in 2012. We saw good growth in market share in non-clothing including women’s footwear (source: Kantar Worldpanel Fashion market share 52 weeks to 2 September 2012 vs. 2011).
For too long Debenhams was a hidden secret to all but our regular customers. Our marketing and brand communication has improved significantly over the past year with a joined up approach under the theme of “Life Made Fabulous”.
We increased our marketing spend in 2012 which has both driven sales and begun to change perceptions about the Debenhams brand. We have increased TV advertising at the times and on the channels our customers are most likely to see them and we have fully embraced digital and social media marketing. Further, we are using the same images and production values for both premium brand marketing and promotional marketing, which in the past had been dissimilar and confusing.
We saw tangible evidence of market share growth in some of the categories where we introduced focused marketing activities. Women’s footwear market share, for example, grew by 40 basis points following the launch of a shoe brochure and prominence in a number of premium adverts.
We have seen significant shifts in customer perception in our independently conducted brand tracker, with greater recognition for exclusive brands, fashionability and engagement.
Looking forward, we will continue to invest in marketing, thereby demonstrating our continuing confidence in communicating the proposition. For the first time in six years we will have a TV advertising campaign at Christmas 2012, aiming to increase our share of voice when the market is at its largest.
Through our work to gain a single view of the customer we will also be able to drive sales through more tailored and personalised communication with customers. There are also new developments in our successful Beauty Club loyalty scheme – which already has 1.3 million cards in regular use – and the introduction of a new store card and credit card with a loyalty element.
1.3mBeauty Club cards in regular use
We communicate with our customers in many different ways including the Beauty Club, which offers treats as well as loyalty points in our premium health & beauty department. We are increasingly using all forms of social media as a marketing channel.
We define multi-channel retailing very simply. It is about widening choice and offering customers more ways to shop.
We are increasing the choice of brands, products and categories that we sell online as well as improving availability and working towards offering a better range of delivery options.See our strategy in action
We know that the more ways we offer customers to shop, the more they do shop. Multichannel customers spend up to three times more than single channel customers. See our strategy in action
Growth will come through making shopping easier for our customers by better customer service and encouraging more customers to shop multi-channel. See our strategy in action
Multi-channel is all about choice. Customers expect the walls of a multi-channel store to be entirely elastic. As a multi-brand, multi-category department store Debenhams is well-placed to meet this demand. Our online product offer now encompasses some 110,000 product lines: one third larger than our biggest store and five times bigger than the smallest stores.
Online is becoming a key destination for some key product categories. In 2012, eight out of ten furniture orders were placed online. One in three dresses was sold online – even higher for occasionwear – and one in five pairs of shoes. Online health & beauty sales, although still small, increased by 76%.
During the first half of 2012 we introduced a store-based fulfilment service we call Endless Aisle which improves availability by meeting demand for products which are out of stock in the fulfilment centre. By utilising the stock held on the trading floors and stock rooms of 36 of our largest stores we are able to meet some 95% of this potentially lost demand. In 2012 we estimate this accounted for sales of £16 million. Endless Aisle reinforces our stores as a vital element of our multi-channel offer.
A focus in 2013 will be to improve the choice of delivery options for multi-channel orders. At present we have a standard delivery promise of four days as well as offering collect from store. Investment in our delivery infrastructure will allow us to shorten the delivery promise and offer a range of delivery options, including next day delivery. These changes will also improve collation, thereby improving customer service and improving the margins of our online business over time by reducing delivery and logistics costs.
£250.6m2012 online sales
£600mMedium-term online sales target
Over the past three years online sales have grown by more than 350%. This performance has given us the confidence to increase our medium-term sales target for online sales from £500 million to £600 million.
It is clear that the more ways we give customers to shop, the more they do shop.
The fastest growing sales channel is mobile. In 2012, 27% of all visits came from mobile devices, higher than the industry average of c.15%. In May 2012 we were among the first major high street retailers to offer free wi-fi in all our stores. This is undoubtedly driving some of the growth in mobile channel visit numbers. Continuing to develop our mobile strategy will be a key focus in 2013 through, for example, introducing device-specific content which recognises that customers use different mobile devices to do different things.
The instore kiosks we installed across the estate in time for Christmas 2011 have been very successful and customers are using them to purchase both out of stock and unranged items. In 2013 new collateral will be rolled out across the estate to improve their profile in store.
Whilst technology is an important part of giving customers more ways to shop, more traditional channels such as the home catalogue which was launched in September 2011 have also proved successful.
177mVisits to debenhams.com in 2012
11thlargest UK online retailer
Visits to debenhams.com increased by 54% in 2012 to 177 million. We are now the 11th biggest UK online retailer by traffic volume, up from 13th last year (source: IMRG/ Experian Hitwise Hot Shops List May 2012).
In 2012 we made some important changes in order to improve customer service. Track and trace is now available on all orders so customers can follow their deliveries online. We introduced webchat technology so that customer service advisors can assist customers through the website. We also made the difficult decision to close our customer contact centre in Taunton and outsource it to a dedicated call centre facility run by Capita in Leeds. This took effect in August 2012 and is providing us with industry leading capability and technology which aims to improve first call resolution, thereby improving customer satisfaction and reducing costs.
Our refund policy has been updated to allow customers to return a product purchased through one channel to any other channel that is most convenient for them. Online shoppers are now able to return goods to any store, even if it does not stock that particular item.
Looking forward, growth will come from improving the visibility of other shopping channels across all channels to convert single-channel customers to multi-channel. So we will be raising awareness of services such as click and collect and return to store. We are using vouchers to encourage store customers to try online shopping, reinforcing the availability of instore kiosks and promoting mobile sales channels and free instore wi-fi.
We will be improving online visual merchandising and product presentation by introducing better photography and product descriptions, particularly in womenswear. All clothing is now displayed on models, including childrenswear. We have invested in an online creative team which is driving improvements in styling. These initiatives should also help to reduce the level of returned goods.
Customers see online and instore as one Debenhams brand and we as a business need to see the customer in the same way. To this end stores are now being credited with online sales within their locality so that each channel is focused on meeting customers’ needs across their own and all other channels.
200%Increase in mobile visits in 2012
537%Increase in iPad visits in 2012
Mobile is by far the fastest growing sales channel through smartphone and tablet apps and the mobile website. Mobile visits increased by over 200% and now account for 27% of all visits.
Debenhams is already so much more than a UK department store brand. It is available in 92 countries through stores or online.
Franchise stores are a proven low-cost, low-capital way to expand the brand in distant and emerging markets. We have ambitious plans to extend the franchise programme. See our strategy in action
We own 11 Debenhams stores in the Republic of Ireland and six in Denmark which trade as Magasin du Nord. See our strategy in action
We are beginning to see momentum in international online which we expect to account for £100 million of sales over time.See our strategy in action
During 2012 we celebrated the 15th anniversary of the opening of our first franchise store in Bahrain. We continue to believe that in most distant and emerging markets this proven low capital, low cost franchise model is the way to extend the reach of the Debenhams brand outside the UK.
The key to a successful franchise store programme is having the right partners. Our partners are retailers with considerable experience of operating in their local markets as well as the resources to make the significant investment in capital and costs required to build and run a department store.
We entered two new markets in 2012, Russia and Pakistan. We also opened new stores in India, the Philippines and Iran. By the end of the year our franchise partners were operating from 68 stores across 25 countries, a net increase of four stores during the year.
In 2013, seven new stores are scheduled to open in both existing markets – Indonesia, Malta, Saudi Arabia and the UAE – and new markets Bulgaria, Georgia and Libya. Beyond this, the contracted store pipeline comprises 14 stores which are expected to open over the subsequent three years. We are in discussions on another 50 or so stores.
As a result of the strength of the new store pipeline, we have increased our five year franchise store target from 130 to 150.
2.7%2012 international sales growth*
18.5%2012 international operating profit growth
The international segment performed well in 2012 with sales growing by 2.7% to £503.4 million and operating profit growing by 18.5% to £30.7 million. The main drivers of this were the franchise stores and Magasin du Nord.
*52 weeks to 1 September 2012 vs 52 weeks to 27 August 2011
Our owned store portfolio outside the UK consists of 11 stores in the Republic of Ireland, which are branded as Debenhams, and six stores in Denmark which have continued to operate as Magasin du Nord since their acquisition in November 2009.
Magasin had a good year with like-for-like sales increasing by 4.6% in local currency. During 2012 the Danish business was integrated into the Debenhams retail operational management through the international division. This will allow for a faster and more effective exchange of ideas and roll out of best practice.
Since acquisition Magasin du Nord has increased sales and margins through the introduction of both Debenhams own brands and Magasin branded volume lines. There is more benefit to come from this in future years. Although the propensity for online shopping is low and multi-channel virtually unknown amongst Danish consumers at this time, this will change and we are well placed to take advantage of changing trends.
The business in the Republic of Ireland has been affected by the extremely difficult economic environment. However it does appear to be stabilising and we believe we are gaining market share.
68Franchise stores at end of 2012
150Five year target for franchise stores
The contracted new store pipeline stands at 21 stores with a further 50 in discussion. We will be opening in a number of new markets including Bulgaria, Estonia, Georgia and Libya.
Online retailing is a key part of our plans for international expansion. Over the mediumterm we anticipate it will generate sales of some £100 million.
Our strategy is two-fold. For major markets we will develop a series of country specific websites, which are presented in the local language and transact in local currency. In other markets we will use overseas delivery from the UK. We made progress in both these areas during 2012.
The development of country specific websites is facilitated by the investment made over the past year in the latest Websphere 7 internet technology. An Irish website has been operating since Autumn 2010. The first local language site was launched in Germany in summer 2012. We will monitor the performance of debenhams.de and learn lessons from it before introducing further websites in major markets.
During the course of the year the number of countries we deliver to through debenhams.com outside the UK increased from seven to 66. Expansion to another 30 countries is planned.
66Countries we deliver to outside UK
£100mInternational online sales target
Although small at present, we have ambitious plans for international online. Our approach is for local websites in major markets and online delivery in other markets.