Debenhams Sports Direct trial announced

After reporting a 1% fall in underlying sales in the 15 weeks to June 15th, a Debenhams Sports Direct trial was announced, initially at two Debenhams stores – Harrow and Southsea. The trials will start in August 2014 and may expand later this year.

Costa Coffee will launch concessions in six UK Debenhams stores in:

  • Guildford (June),
  • Slough (June),
  • Derby, (July)
  • Woking (July),
  • Haverfordwest (July).

James Hamilton, UK Head of Acquisitions at Costa, commented:

“It is important for us to partner with other leading British retailers in order to deliver the best experience for coffee lovers. We see this as a mutually beneficial partnership; bringing together the nation’s favourite coffee shop brand with one of the UK’s leading department stores, allowing both brands to strengthen customer experience and further drive sales.”

Debenhams says it is in discussion with several other brands.

Sports Direct influencing Debenhams

Following a severe profit warning – that poor Christmas trading meant half-yearly profits would be 25% down on the previous year –  and the resignation of Debenhams’ finance director, Sports Direct bought a 4.63% (£50) stake in the British department store chain in January. Within a few days it sold the stake, making a £5 million profit. However, Sports Direct made an unusual derivative deal which allows it to acquire a 6.6% stake in Debenhams in 2015 if share prices fall. It is believed that Mr. Ashley applied pressure on Debenhams’ management.

According to customer research, shoppers would like to see more sportswear in Debenhams stores. Michael Sharp, Debenhams CEO, said “The conversations with Sports Direct have been about trying to fill that gap. Our sales of sportswear are less than 1 per cent of our total sales, and clearly they are very good at sportswear.”

Unlike most Sports Direct retail outlets, those in Debenhams will have a higher percentage of goods aimed at women and young people.

10% of Debenhams’ space underperforming

Part of the company’s strategy is to drive a better return from its UK store assets by improving sales densities on underperforming space, Mr. Sharp explained. About one million square feet (10%) of Debenhams’ space is underperforming.

Mr. Sharp said:

“The way to make that space more efficient is to add more choice. But we have to make sure it is things that customers expect to see from Debenhams – extensions of things we sell, or new things.”

Debenhams’ online sales continued to grow, while the rate of decline in its physical stores has been slowing when compared with the first half of the year.

Debenhams store
Debenhams needs to redeploy excess store space and reduce promotions.

Following completion of the flagship transformation in February, its Oxford Street store performed strongly. Debenhams wrote “Importantly, our strategy to refocus our promotional activity delivered higher levels of full price sell-through compared to last year.”

Analysts criticized Debenhams for reducing its pre-Christmas prices on the high street with endless sales and heavy discounts. It seems Sharp’s efforts to wean the retailer off its promotion addiction is paying off. The company’s summer sale in 2014 will start on 26th June, two weeks later that in 2013.

In April 2014, Mr. Sharp made a pledge to:

  • reduce promotions,
  • improve the competitiveness of its online business with greater delivery options,
  • redeploy excess floor space,
  • speed up international growth.

Its physical stores that have been open for at least a year reported a 0.7% increase in sales in the 14 weeks to June 7th.

About Debenhams and Sports Direct

Debenhams Plc

Sports Direct and Costa Coffee
The trials may be expanded later this year.

Debenhams Plc is a British multinational retail chain with 171 department stores in the United Kingdom, Ireland and Denmark. There are several Debenhams franchise outlets in other countries.

It was founded in the 18th century as a single London store. It is a constituent of the FTSE 250 Index.

Its headquarters are in London. The company employs 29,000 people. In 2013, it reported revenues of £2,282.2 million, an operating income of £154.0 million, and net income of £127.9 million.

Sports Direct International Plc

Sports Direct International Plc is a British multinational retailing group with more than 500 stores globally. Britain’s largest sporting retailer was founded by Mike Ashley in 1982.

The firm owns a range of sporting brands and trades mainly under the brand. It owns the following sporting and fashion brands: Dunlop (in most markets), Donnay, Slazenger, Lonsdale, Karrimor, Kanjol, and Everlast. It also owns the retailers USC and Lillywhites.

Sports Direct was floated in 2007 and is a constituent of the FTSE 100 Index. Mike Ashley, who also owns Newcastle United Football Club, holds a 61.7% stake in Sports Direct.

Its headquarters are in Shirebrook, Derbyshire, UK. The company employs 24,000 people. In 2013, it reported revenues of £2,186 million, an operating income of £213 million, and net income of £152 million.