British retail giant Debenhams confirmed this morning that it will close up to 50 “under-performing” stores in the next three to five years.
Those rumours have now been verified after the company’s preliminary results for its latest financial year revealed a statutory loss of £491.5m. That compared with a £59m profit the year before.
Sergio Bucher, chief executive of Debenhams, 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.
“We are taking tough decisions on stores where financial performance is likely to deteriorate over time.”
The loss Debenhams recorded came about after three profit warnings this year and £512.4m worth of write-downs relating to store and lease provisions, IT costs, and impairment charges.
Debenhams said that it has undertaken a comprehensive review of its portfolio and carried out a detailed analysis of its store estate, based on current market trends.
After announcing 10 store closures earlier this year, it has identified a further 40 stores which are predicted to make a loss over the next 3-5 years. It said the affected stores are “operating in challenged markets where we no longer see a long term future”.
The stores closing amount to 15% of Debenhams’s gross transaction value (GTV), whereas the 100 stores that it has identified as operating profitably account for 80% of its GTV.
Debenhams said the remaining balance of approximately 20 stores remain profitable but are not likely to deliver a return on further investment in current markets. It is therefore seeking alternative solutions for these stores, which will vary from store to store depending on local market conditions.
The store consolidation comes as Debenhams expects its ecommerce sales to become a larger part of the business. It is planning for online to account for approximately 30% of its business, compared with 20% currently.
Bucher said: “With a strengthened balance sheet, we will focus investment behind our strategic priorities and ensure that Debenhams has a sustainable and profitable future.”
Debenhams also announced actions to generate cash and reduce debt, to be achieved through accelerating a cost reduction programme to target around £130m cash savings over three years, focusing on investing in priority elements of the Debenhams Redesigned strategy, and a suspension of dividend payments.
In the report published today, Debenhams sales fell 2% year-on-year to £2.9bn.