Debenhams in crisis: the good news for shoppers

Updated: 

Debenhams stock

Debenhams had a shocker of a Christmas. They alarmed the markets on New Year's Eve, by announcing that profits for the festive season would be far lower than last year - and lower than anyone had expected. Now the company's finance director has resigned, and there are questions about what the future holds.

So is this terrible news for the high street, or could it be good news for shoppers?


Disaster

Profits during Christmas were truly terrible. In the five weeks running up to Christmas 2012 they made £115 million, and analysts were predicting a slight fall in 2013 to £110 million. So it came as a horrible shock when they emerged at just £85 million.

Michael Sharp, the chief executive, said that the store had discounted in the run-up to Christmas to compete with discounts across the high street. However, he added: "This extremely difficult environment has inevitably had an impact on both our sales and profitability."

The company has been a winner from the discount wars in the past, but it seemed that too many retailers were playing the same game this year for the home of the Blue Cross sale to stand out.

This was particularly bad news given that it was the retailer's second profits warning in 12 months. And yesterday its Finance Director resigned. Simon Herrick had already hit the headlines when he attempted to claw back some profit by asking suppliers to cut their costs in the run-up to Christmas.

Bad for the high street

Sharp hardly exactly built confidence when he added that he didn't have any more confidence in consumer spending in 2014, because shoppers weren't feeling any impact of the economic recovery.

If the store doesn't turn things around this could be terrible news for the high street. Debenhams has become a stalwart of the retail world, with 200 years on the UK high street.

It is the largest department store group in the UK, and boasts 240 stores in 28 countries. The demise of the brand would therefore have far-reaching effects. If the company was forced to scale back, we could see yet more high streets lose the shops which have been their lifeblood, and become ghost towns.

Good for shoppers?

However, before we start sounding the death knell for the group, it's worth pointing out that there's no reason why Debenhams shouldn't be able to get back on track. Department stores are not destined to become a thing of the past just yet.

Other stores including John Lewis and House of Fraser announced strong sales over Christmas. House of Fraser said like-for-like sales had risen 7.3% in the three weeks to 28 December - and online sales were up 57.6%. Meanwhile, John Lewis saw like-for-like sales rise 6.9% in the run up to Christmas.

In addition, in the process of the shop fighting back, we stand to see some serious bargains. Sharp said that there would be higher markdowns in the January sales to ensure it moved its stock. And there is growing speculation that it will announce further reductions throughout January and February to keep sales buoyant.

If you're planning a major purchase, there's more reason than ever to include Debenhams when you're shopping around to find the best price.

It seems that there is a future for the right stock at the right price on the high street. The question is whether Debenhams can get it right before it's too late.

High Street casualties

High Street casualties