LONDON (Reuters) - Struggling British department store chain Debenhams is closing up to 50 of its underperforming stores, putting about 4,000 jobs at risk, after it reported a record full-year loss of nearly 500 million pounds ($645 million).
Chief Executive Sergio Bucher said he was “taking decisive steps to strengthen Debenhams” in a tough retail market.
“We are taking tough decisions on stores where financial performance is likely to deteriorate over time,” he said.
Bucher, a former Amazon executive, is trying to keep Debenhams relevant to British shoppers who are increasingly buying online and spending less on clothes.
The cuts are deeper than Bucher’s original plan to close 10 of the chain’s 166 UK stores, downsize others and renegotiate leases and rents on its estate. The shops, which have not been named, will close in the next three to five years.
“We want to have fewer but better stores, with a better shopping experience,” he told BBC radio on Thursday.
“We want to grow our online business and we want the whole of the organisation to be more profitable.”
Debenhams shares, down 80 percent in the past year, touched a new low of 8 pence, valuing the company’s equity at about 100 million pounds, before gaining 11 percent by mid-afternoon.
Royal Bank of Canada said Debenhams was in “survival mode” but the more aggressive store closures should be well received.
“However, for Debenhams to offer an attractive long-term equity story, we also need to see some prospect of an improvement in underlying trading, and department store trading conditions remain very challenging,” the bank’s analysts said.
Debenhams, which has issued three profit warnings this year, wrote off 512.4 million pounds on leases and goodwill, leading to a loss of 491.5 million pounds, the biggest in its 240-year history.
Stripping out exceptionals, adjusted pretax profit for the year to Sept. 1 was 33.2 million pounds, down 65 percent, which Bucher said reflected “a tough year for retail”.
Debenhams, which attracted 19 million shoppers last year, is not the only retailer that has suffered on the high street in Britain and beyond.
BHS went bust in 2016, House of Fraser was bought out of administration in August by Mike Ashley’s Sports Direct, which owns 30 percent of Debenhams. Market leader John Lewis has also warned on profit.
In the United States, Sears, a retailer that once dominated shopping malls, filed for bankruptcy this month.
Bucher is trying to make Debenhams’ stores more attractive to shoppers with product and store improvements, such as enhancing its beauty and food offers.
But the consumer environment is not helping him.
Shoppers’ budgets have been squeezed and the money they are spending is increasingly going towards holidays, entertainment and online offers..
Debenhams’ like-for-like sales fell 2.3 percent, reflecting weak demand for fashion and make-up, both core segments for the retailer.
The clothing market declined in the second half of the year, Debenhams said, citing data from industry analyst Kantar, but it maintained market share and grew in womenswear, where it is most advanced in improving its ranges.
A downgrade by ratings agency Moody’s in August compounded the pressure already coming from poor summer trading, rents, business rates and staffing costs, said David Birne, insolvency partner at H W Fisher & Company.
“Store closures were almost a given after the department store had its credit downgraded,” he said.
Bucher’s strategy announced on Thursday is to focus investment on 100 key stores, as well as growing online sales to around 30 percent of the total from around 20 percent currently.
He is also targeting further cost savings of at least 30 million pounds, reducing capital expenditure to about 70 million pounds - half the level of last year - and scrapping the dividend to bolster the group’s balance sheet.
The company’s net debt increased to 321.3 million pounds from 275.9 million pounds a year earlier.
($1 = 0.7745 pounds)
Editing by Andrew MacAskill, Adrian Croft and Alexandra Hudson