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Brief Description of the Company
Debenhams is a popular department store and has been a retail fashion leader in the United Kingdom for at least 200 years. Debenhams was formed in 1778 by Messrs and Clark under the name Flint and Clark. During 1813, William Debenhams became a partner in the business and it was renamed to Clark and Debenhams. The franchise was renamed to Debenhams during 1905 and listed in the London Stock Exchange during 1928. The company operates 123 high-street stores throughout the United Kingdom and Ireland and additional 40 international braches. Debenhams expanded its operations to Middle East and East Asia (Debenhams , 2011). The company specialises in offering brand-name apparels, high-end household items, cosmetics and bridal registry services. The company has been using its transactional website which has resulted in significant benefits, including online transactions that are robust and scalable, implementation of centralized marketing and merchandising and an enhanced customer interaction (Debenhams , 2011). The company has an exclusive multi-brand and multi-category product offer, which combines a distinctive brand mix with the strength of the various product categories. The multi-brands include own bought private labels, own bought designers at the company, own bought international brands and concessions. Product categories include women’s clothing, men’s clothing, children wear, home and gift, accessories, lingerie and food services (Debenhams , 2011).
Market Position of Debenhams In Relation To Six Competitors
The retail industry is extremely dynamic and fast-changing. It is one of the significant economic sectors in relation to transactions and turnover; this implies that the retail industry is extremely competitive and sophisticated. As a result, firms in the retail industry must constantly engage in monitoring the trends in the market in order to discover new trends in a well-timed manner. In addition, retail firms must adapt to the ever-increasing expectations of the customers and their ever-changing tastes and preferences (Debenhams , 2011). The retail sales in the United Kingdom are over £246 billion, with the retail industry showing positive signs of growth. The market position of a firm can be assessed in terms of its market share, which is defined by the percentage of sales within the market or the industry. Basing on the sales revenue and sales volume, key competitors to Debenhams in the United Kingdom department stores sector are Harrods, House of Frasier, Selfridges, John Lewis, and Marks and Spencer (non-food section).
A summary of the key findings in relation to department store markets reveals that it grew by £0.7 billion during 2010, which was a 5 percent growth. In addition, inflation returned to the market during 2010 after twelve years (Datamonitor, 2009). The clothing and footwear sector in the UK makes the largest gains and John Lewis attained the highest growth in the market share during 2010. John Lewis places more emphasis on service, quality and price, which has played an integral role in attracting customers and enhancing their brand loyalty. Its launch of Value Homewares range during 2009 and the implementation of younger brands clothing played an integral role in expanding its customer base ( Financial Times, 2011). John Lewis is the second largest department store in the UK market, implying that its success made significant impacts on the market, especially by increasing competition for Debenhams. Marks and Spencer is the largest department store operator. Marks & Spencer has approximately one third of the market share in the UK, and stands out as a market leader. In light of this market situation, Debenhams sacrificed sales in favour of improving margins. This resulted in a loss in the market share due to ineffectiveness of the strategy of converting the space used for concession for private labels. This also caused a significant reduction in sales resulting in a 1.2 percent drop in market share to 16.4 percent during 2010 (Debenhams , 2011). TJ Hughes, on the other hand, benefited significantly from value proposition because of the attractiveness of the discount model. This resulted in a 0.5 percent increase in its market share to 2.3 percent during 2010. During 2010, luxury retailers benefitted significantly from the aspect of destination appeal and the tourism market that was becoming increasingly lucrative. Debenhams lost its market share because of the focus on own brand and margins. Debenhams, Harrods, House of Fraser and John Lewis increased their emphasis on own labels as a strategy to establish a strong brand differentiation from their core competitors and improve their profit margins, a strategy that did not turn out well for the case of Debenhams.
The following chart indicates the market position of Debenhams and other core competitors in the department stores sector in the United Kingdom.
Financial Performance of Debenhams In Relation To the Six Main Competitors in the Sector
Debenhams has witnessed an increase in its gross transactions despite a decrease in sales. During the 2009 and 2010 financial year, its performance increased according to the revenue growth and net income. For the 2011 fiscal year, Debenhams incurred a gross margin of 13.43 percent, net profit margin of 5.30 percent and operating margin of 8.31 percent. The return on assets was 5.71 percent; return on equity was 20.15 percent, while return on investment was 10.16 percent. The strong performance of Debenhams can also be attributed to its online transactional website, which is projected to increase its sales by 34.8 percent. The company has laid emphasis on maximizing the gross margin by using effective management of promotional events and their product mix. An outcome of this in relation to performance is that its stock levels across its functional divisions are firmly controlled. The following charts indicate Debenhams performance in comparison to its competitors.
External Economic Factors That May Influence the Company’s Position and Financial Performance In The Future
There are numerous economic factors that influence the position of the company and its financial position in future. The economic factors include changes in real income, changes in disposable income, changes in interest rates, changes in household income, rise and fall of unemployment and expansion of Gross Domestic Product.
Changes in real, disposable and household income play an vital role in shaping the spending habits of consumers, and ultimately the sales revenue of the company. In addition, changes in unemployment rates affect the level of income, and spending habits of consumers. An increase in the employment rates translates to increased income levels and ultimately sales revenue. Interest rates affect the value of currency and the various economic policies, which significantly affects consumer spending habits.