It is an obvious truth, but one worth repeating, that the fortunes of retailers and the investors who own our shops are intrinsically linked.
That means that at a time when UK retail is going through a period of change as dramatic as any of us can remember, there is a pressing need to work in partnership to define a new future for physical retail.
In trading conditions which are very tough for all physical retailers, we are working hard to deliver our Debenhams Redesigned strategy.
Debenhams remains a profitable business, with sales of £3bn a year and online growth ahead of the market. However, like most retailers with store portfolios, we are facing the challenges of changing customer behaviour, an accelerating shift to online, and the spiralling costs of doing business.
Consequences of inaction
After our people, property is our biggest cost. And, right now, it is our biggest challenge.
The channel shift to online means stores are becoming less profitable, while at the same time we face business rate increases of over 20% on some of our stores.
While nearly all of our 166 UK stores are profitable today, extrapolate current market trends three to five years forward and that picture is going to change.
Leases which have decades to run and are locked at historic rental levels are a serious issue in a sector that is transforming at great speed. As consumer purchasing habits change, many of our stores are too big, and we know many are now over-rented.
To be clear: this is a challenge which affects us all. Retailers, landlords and local communities will all be adversely affected without swift collaborative action.
The consequences of inaction are already visible – multiple CVAs and even reports of retailers offering to pay only rates and service charges on large stores.
Examples of good practice
We believe in the future of department stores, and – judging by the reception to our new and refurbished stores – so do customers.
But that future will not be realised without a true partnership approach, with landlords committed to working together to create more flexible lease agreements that reflect the reality of modern-day retail.
There are already examples of good practice. We’ve worked closely with landlords to create compelling stores that are genuine destinations.
Our latest store in Watford features our first Beauty Hall of the Future, with 24 new brands and beauty services from partners such as Blow Ltd and Benefit, and two great dining options.
It anchors an extension to intu Watford, where 12 other new stores will also open, and the developer has worked closely with us to support our ambitions to create a true destination store.
In Uxbridge, we have worked with the same landlord to reduce the size of an existing store and regear our lease, giving Debenhams a contemporary store which is the right size for our needs, and enabling the landlord to bring in a new retailer into space which has been released.
It is something we could do in many other stores, but some of our property partners aren’t willing to have the conversation. That needs to change.
Working together is key
We have more in common than separates us. It is in all our interests that physical retail has a bright future, and that there is a level playing field between multichannel and pure-play retailers.
At the very least, landlords should be working together with retailers to ensure the government understands the disproportionate impact business rates have on stores, and the serious economic and social impact that store closures are having on towns around the UK.
All of us at Debenhams are focused on building a profitable long-term future for our business. That means making hard choices about where we operate today, and where we won’t in future; where we invest to achieve the greatest returns and where we manage for cash.
Effective collaboration with landlords is crucial to the future of Debenhams. If we can work together, I am confident we can build a sustainable and exciting future for department stores at the heart of the high street and, if we do that, everyone benefits.
