Sharp decline in department stores leaves watch brands facing tough channel decisions

Department store

How important will department stores be to the channel strategies of watch brands in 10 years time?

It’s a question that every watch company has the right to ask themselves after new figures revealed the number of large department stores in England has slumped by 25% in less than a decade.

There are now 180 department stores in the country, down from 240 in 2009, according to research from peer-to-peer secured lending platform Lendy.

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The biggest concern is the pace of the decline given that overall shop numbers have only fallen by 1%, to 403,000 units, in the same time.

Department stores have been more sharply affected than the rest of the high street by online shopping as the unusually heavy debt burdens carried by department store groups has hampered their own investment in ecommerce and in store refurbishment.

The department store groups have built up that debt burden through an unusually high level of M&A activity that the sector has been subject to in the last 15 years.

For example, the purchase of Debenhams by PE investors in 2003 gave it a debt pile of £1 billion that it has been paying down since then. BHS went into administration with debts of £1.3 billion after its owners used debt to help fund dividend payments.

House of Fraser and Debenhams are currently looking to restructure their businesses, Lendy said.

After issuing a profits warning at the start of the year Debenhams plans to downsize at least 30 of its stores, while House of Fraser has recently announced plans to launch a Company Voluntary Arrangement (CVA) in June, after they requested a rent cut in January.

With money being spent on servicing the debt repayments, rather than investing in their e-commerce channels they have been unable to meet the challenge of online competitors.

Liam Brooke, co-founder of Lendy, comments: “The falling number of department stores shows they have borne much of the brunt of the shift towards internet shopping. Local authorities will have to consider whether they want to make it easier to change the use of department stores to being partly residential as it will be hard to fill these properties with new tenants.”

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Andrew Seymour

The author Andrew Seymour