(Adds details, comments, House of Fraser comparison)
By Neil Maidment and Kate Holton
LONDON Jan 2 The finance chief of Debenhams Plc
quit on Thursday after trading updates showed just how
far the 200-year-old British retailer had fallen behind rivals
John Lewis and House of Fraser over the crucial
The departure of Simon Herrick from Britain's second-largest
department stores group follows a profit warning on Tuesday, 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 spending.
Debenhams blamed a 25 percent cut to its first-half profit
forecast on an industry-wide outbreak of Christmas promotions
that left many British stores emblazoned with "sale" signs, as
well as the impact of mild autumn weather on 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.
"We are confident that the strong updates from House of
Fraser and John Lewis will put them both firmly in the 'winners'
column this year, but .. see enough to suggest that Debenhams'
problems are more company-specific than market-led," analysts at
brokerage Numis said.
Debenhams stores have also failed to keep pace with the more
modern outlets of John Lewis, Britain'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.
Both John Lewis and House of Fraser posted record Christmas
sales on the back of demand for fashion and electrical items and
growing online trade.
"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," Verdict research analyst Kate Ormond said.
Similarly, smaller House of Fraser, which made a loss before
tax and one-off items of 6.9 million pounds ($11.4 million) in
its last fiscal year, is benefiting from disciplined discounting
and a shift to higher-priced products. "House of Fraser is a bit
more of a premium price level for a more premium product... When
you want to treat someone, people are prepared to step up,"
Verdict's Patrick O'Brien said.
Debenhams, which has 238 stores in 29 countries and sells
online in 67 countries, has said despite discounts of up to 50
percent in the run-up to Christmas, prices would be slashed
further in January and February to shift stock, knocking 80 to
100 basis points off its first-half gross margin.
Over the 17 weeks to Dec. 28, Debenhams eked out 0.1 percent
like-for-like sales growth, well behind the 4.3 percent and 6.9
percent recorded by House of Fraser and John Lewis respectively
in the shorter reporting periods of nine and five weeks to Dec.
Analysts at Numis expect Debenhams' UK business to post a
fourth-straight year of earnings decline this year, dropping
from 174 million pounds in 2010 to 95 million.
Despite having 156 UK stores against the 40 run by John
Lewis, Debenhams trails the latter in both sales and profits. In
the year through of August 2013, Debenhams posted gross sales in
Britain of 2.3 billion pounds, with operating profit of 140
In its 2013 full year, John Lewis stores - which do not
include the Waitrose supermarket arm - posted gross sales of 3.8
billion pounds and operating profit of 217 million.
Faced with falling "footfall" or store visitors, the group
is in the middle of a programme to modernise its stores, such as
a 25 million pound makeover of its flagship on London's Oxford
Street, and is working to improve its online presence.
Debenhams, which traces its history back to 1813, made
around 16 percent of sales online, versus 32 percent for John
Lewis in the most recent trading updates.
Shares in the group are down almost 40 percent in the last
12 months, falling 12.5 percent on Tuesday alone after it said
it now expected first half-profit to be in the region of 85
million pounds, around 23 percent off analysts' forecasts.
The profit warning was also an ominous sign for Britain's
biggest clothing retailer Marks & Spencer, whose rare
move to slash 30 percent off clothing prices in the run up to
Christmas has prompted fears it too had suffered poor trading.
The departure of Debenhams CFO Herrick after two years in
the role had been trailed in local media reports, after he came
under fire for asking suppliers for a discount and a one-off
contribution in the days running up to the key festive period.
The firm said director of finance Neil Kennedy will assume
the role on an interim basis while a replacement is sought.
($1 = 0.6038 British pounds)
(Editing by David Holmes)