When a dream is too delusional

We all have those dreams we know will never pass into reality, they are too delusional for comfort, but they are dreams, so we go with the flow. One example is winning the €135,000,000 lottery, the other could be one including Wallis Day (main character in the DC series Krypton) to spend a weekend to remember at her place (with all the extra options). Yes, all options that are delusional and never ever a setting that could ever be true. So in all this we get to yesterday’s article in the Guardian where we (at https://www.theguardian.com/business/2019/apr/27/very-disappointing-ashford-laments-loss-of-debenhams-branch) are treated to ‘‘Very disappointing’: Ashford laments loss of Debenhams branch‘, yes it might be very disappointing, yet consider a few items. First there is the building that they are in, then consider that Ashford has a population of 62,787, so we need to look at another side of it all, or in this case the 2016 Annual report (at http://www.annualreports.com/HostedData/AnnualReportArchive/d/LSE_DEB_2016.pdf).

They had a staff count of around 28,000 supporting 182 stores in the UK and Europe as well as their domestic and international websites. Now consider their premise of Gross transaction value (52 weeks) of £2.9bn. In that regard, how does a shop in a village of 62K people add up to anything? When we look deeper and consider that Debenhams had a total of 165 stores in the UK alone and the amount of cities in the UK from 100,000 people up to 1 million added up to 96 locations, in the remaining places how did Ashford got to be one of those 69 positions? Now, we can see that in Kent, the average income is set to £29,095, which is above the UK average, still, when we do the numbers, the entire validation of having Debenhams in Ashford does not add up. Not in such a posh place, making me wonder why the building was placed there to begin with.

Now consider the additional information that the Kent Online gives us (at https://www.kentonline.co.uk/kent-business/county-news/debenhams-to-close-four-kent-stores-203461/). So, Ashford, Canterbury, Chatham and Folkestone are all shutting down, in all this, I wonder why Ashford, Canterbury and Folkestone were placed in the first place. Kent with its 1.5 million people (in the entire county) has a case for one Debenhams but not 4. The numbers do not make sense. Now we need to remember that Debenhams has been around for two centuries and as such they do not all have new places, but when I see Debenhams Ashford, I see a story that seems to think it is in a multi-millionaire district with 20,000 shoppers, whilst 2,000 active buying shoppers at best would be an achievement in Ashford, the entire article by the Guardian left me with way too many questions. The shop is clearly set out to call in the higher spender; the Dior setting dominating the floor gives that impression. Now, it is not merely about the prices, because Debenhams has always shown to have value for money and their stuff is affordable, yet that also creates the need for a much higher volume of purchases and let’s face it, Ashford is not a place where people buy clothes at a non-stop speed, the cost of living is not supporting that, and the optional coffee machine at £282.00 is not one that most people would buy, the one off perhaps, but most will resort to the luxury Russel Hobbs at £35.00. Now we get the image clearing up, you see as margins are lower, the units need to be sold at much higher frequency and there we see that Ashford never had the stage, moreover it is at least two Kent stores that could be seen as a drain on the Debenhams fortune and that took less than 2 minutes to figure out, so how the continued expansion (read: building upgrade) was seen by those in charge is beyond me.

So when I see: “For other young people, the department store had little to offer. “I just go in there to use the spray on the beauty counters,” said Faith Figaro, 17. “I think it’s expensive, to be fair.”” we see a 17 year old making the case for me and I wonder what possessed the Debenhams top to go in this direction in the first place. It gets to be even worse when the Guardian prints the pragmatic “It’s all hairdressers and coffee shops and nail bars. People won’t come here to shop – they’ll go to a bigger town like Canterbury instead“, which in itself is a truth, making me wonder what is getting into some of these delusional big brands. The entire setting of the larger players has been under fire for the longest of time and the essential need to revisit locations is becoming an essential need for all of them, as such the statement: “Conservative MP Damian Green described the news as “very disappointing”. On Twitter, he wrote: “We need to redouble efforts to strengthen the town centre.”” becomes one of worry. Even as a conservative I wonder how Damian got elected, merely as I saw the writing on the wall within three minutes, so he should have been on the ball for a much longer time, as such the Debenhams situation should have been to be expected, not ‘disappointing‘. For me the entire issue that is started by “Ashford borough council said they would work with the owners of the shopping centre to try to find new occupiers” becomes an issue soon enough. It is the duty of the owner to seek shops and to seek occupancy. When you put an expensive Rolls Royce in an old meadow, you cannot expect your return on investment, you do that by slashing rental prices and by seeking long term solutions that can afford to be long term solutions. Staging ‘elite placement’ in a place where ‘elite placement’ is not realistic is the stage where we see the Australian Westfield issue explode on several stages, places that are intent to fall over within a year, it attracts the wrong facilitator and that is where things go from bad to worse.

It is not the end, it is the Kent Online that also gives us the words from Executive chairman Terry Duddy: “Debenhams has a clear strategy and a bright future, but in order for the business to prosper, we need to restructure the group’s store portfolio and its balance sheet, which are not appropriate for today’s much changed retail environment“. The words sound nice in theory, yet from my point of view; the stage we see in the 2016 annual report contradicts the actions of having most Debenhams in Kent. And when we look at the annual report making the: Profit before tax* (52 weeks) £114.1m claim. I get to the stage thinking that their clear strategy was anything but clear.

In that version of a report we see the strategy: “To be a leading international, multi-channel brand by delivering a compelling customer proposition and increasing availability and choice through our flagship digital platform and well-invested, well-located stores around the world.” I honestly think that they got that wrong by a fair bit. You see, from my personal point of view the setting of ‘well-invested, well-located stores‘ we see the stage where it should have been ‘well-invested, and viable well-located stores‘ it is that part where viable needs to matter and in 50 of the 166 cases it was not to be and that is not something from the last year, the action should have started no later than 2015 as I see it.

It gets to be slightly entertaining when I look at their risk management in light of their e strategic and operational goals, but let’s not make too much fun of the situation, shall we? Even as there is a lot to be said on their KPI’s, the clear message of net debt reduction is important and a good thing, if that £40 million net debt reduction had not been met, the entire matter would have been critically fatal for Debenhams no later than 2018, so good steps had been made, yet larger were essential two years ago, that is as I personally see it and without the raw data my findings are open to critical debate (as my view might be wrong). Yet at page 29 we see the largest flaw. When we see: “New UK stores 12%” we see the largest mistake, in a place where there were 166 stores whilst the population did not support further growth that should have been staged for modernisation for now. I get it, some stores are too old and new stores replace the old ones, yet the 5 year option to rely on upgrades until the economy is much stronger was an essential step to make, even if some of the lucrative old shops would shut down, the long term growth in this economy is just not there. This is why I got the 2016 annual report (the 2017 would have been better, yet I could not find that puppy). Aspects of 2016 and 2017 are seen now, its impact is now direct, like a good ship you adjust course and wait for the numbers to be clear so any adjustment in 2018 would not be a valid impact until 2020 (unless it is immediate navigation) and there is where we see some of the flaws of Debenhams. Even now I noticed that internationally they are not in Germany, it might be because Hennes & Mauritz AB is too great a threat, it might be for another reason, but the one nations where the economy is still in a much better place, is the one place they do not show up. Can they honestly claim that Debenhams Bonn, Berlin and/or Munich would not make it? In the Netherlands they would have a cat fight with C&A and a few others, in Sweden there is Hennes & Mauritz AB, Åhléns and a few others, so that makes sense, France is a dimension all on itself, so no way to tell, yet Germany? If I had to bank on Debenhams Munich or Debenhams Ashford, Ashford would never have been a consideration, yet with no timeline on Ashford I have to make the blind choice and it would not be Ashford, due to no fault of anything Kent related.

It is on page 138 we get the final part. Here we see the minimum lease payments under non-cancellable operating leases. Now some have been there for a long time, it was a choice made and that is fair, yet in the entire matter we see that for up to 5 years we see £96.7 million in play and I have some serious questions on those marks, in light of certain facts seen now, I wonder which of those should never have been made, but that is merely my view on the matter and with up to 50 stores up for closure I personally reckon I might have a case on that.

LSE_DEB_2016

 

 

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