It’s carnage on the high street right now. There has been a sense for some considerable time that something has to give. Here in the UK, when BHS went bust in 2016, there were many who were left wondering how the department store chain had managed to limp along for so long.
With hindsight, BHS’s demise seemed like something we should all have seen coming. Its stores looked shabby and outdated, its whole brand seemed desperately stale and out of kilter with the modern age. It’s hard to imagine who actually shopped there, what the BHS demographic was.
The restructuring of the UK high street does not look like stopping with BHS, however. The days of the traditional, staid high street department store selling a mish-mash of own brand and private label clothing look increasingly numbered. Will this Christmas just gone be the last for some?
A brief anecdote. I was out shopping in January looking for some jogging bottoms for a nine-year old. I tried the local Debenhams and was baffled by, firstly, the complete lack of range, and secondly, the general sense of confusion in the children’s section. I could finding nothing remotely appropriate. I then called to H&M and it was a case of job done in less than five minutes. There were loads of kids joggers, the most expensive I saw being just £9.99. I purchased a few other items too because they looked good, were well presented and they were cheap. Anecdotal evidence this may be, but most parents I talk to buy their children’s clothing – certainly staple items – from H&M these days.
How can large, cumbersome department stores compete with the modern, nimble footed H&M model (not to mention Amazon)? The truth is, they can’t unless they completely reinvent themselves – which is much easier said than done. Marks & Spencer seems to have been reinventing itself for the past decade, and is certainly a quite different animal to ten years ago. The trouble is, people no longer seem to be watching – or certainly not enough of them – and its high quality, slick marketing is, in the main, preaching to the converted, when new, younger customers are what it needs.
Back to Debenhams. In early January, the business saw its shares slump by as much as 24 per cent after a warning over profits, and it was forced to slash prices to boost struggling Christmas sales. The retailer said that UK like-for-like sales fell 2.6 per cent in the 17 weeks to December 30, with overall group sales down 1.8 per cent.
Debenhams said in a statement that, “should the current competitive and volatile environment continue,” into the second half, full-year profit before tax is likely to be in the range of £55 million to £65 million, significantly below expectations.
Debenhams is far from alone in its struggles. Also in January, UK department store chain House of Fraser took the extraordinary step of seeking to slash its rent bill, raising fears it could be the next high street department store to go down. House of Fraser wrote to landlords asking for its rents to be cut in a move which had unfortunate echoes of action taken by BHS shortly before it went bust as it sought to reduce its rent bill.
House of Fraser sales are said to have been further hit by an overhaul of its website in spring 2017, and the retailer also scrapped a number of underperforming brands which forced it to heavily discount many items.
These are desperate times indeed for many leading department stores in the UK, and a similar story can be found in the US. While many commentators have actually been making the arguments above for several years, something feels different right now. Department stores have just about coped with the rise of fast fashion chains such as Primark, H&M, Zara and the like. But there has always been a sense of hanging on, of swimming against the tide; a gut feeling that it wouldn’t take much to push one or two of them over the edge. Amazon’s serious entry into retail may well be the straw that broke the camel’s back.
Last year hedge fund tycoon Crispin Odey said of Debenhams: “It’s a race between them and House of Fraser as to who will go down first.”
Odey is notoriously gloomy in his outlook but I’d actually add a caveat in this instance and suggest this is more than just a two horse race.