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Debenhams targets logistics to address profit slide

16 April 2014

The High Street retailer is struggling with the advent of online sales and part of its catch up plan involves increased used of Click & Collect and investment in automated packing equipment in its DC for tackling online orders.

Debenhams reported profits falling 25%, with pre-tax profit £85.2m for the 26 weeks to 1 March. The company was hit by lower-than-expected clothing sales, promotions from rivals over Christmas and intense online competition.

Chief executive Michael Sharp said: "While this has been a challenging first half, we are clear on the issues and are taking decisive action to address them. In particular we are focused on building a more competitive multi-channel offer for our customers and improving the operational effectiveness of the overall business.”

The UK stores contribution to Debenhams sales fell by 2.4% in the period, while online sales increased by 2.8%.

The growing importance of online sales is posing a problem for retailers. They must go where the business is but attractive profit margins are harder to realise in this realm.

Total operating costs grew by 4.3% in the same period for Debenhams, partly because of the increase in the variable costs associated with growing online sales.

Debenhams told investors: "We have been working on for the past year to reduce the cost per unit of fulfillment and this will continue, particularly around Click & Collect. We are accelerating our investment in automation in our distribution centres, starting with the packing process in time for peak trading.”

Click & Collect is an important cost saving measure for UK retailers, with eCommerce deliveries to home roughly three times more expensive to fulfill than deliveries to store.

Debenhams is doubling the store space allocated to Click & Collect activities, both front-of-house and stockrooms. It is also closing six off-site stockrooms by the end of the calendar year.

Price or convenience - which is king online?

During the same period, Debenhams launched next day delivery to home in the UK.

The company trialled increasing the threshold for free standard delivery, however the negative impact on sales was unsustainable and so the increased charge was reversed, leading to lower than expected online delivery income.