London Briefing: All is not well on the British high street

Third profit warning from Debenhams catches analysts on the hop and sends shares tumbling

Shoppers walk past a Debenhams shop in Oxford Street,  London.  The group’s poor performance has been blamed on increased discounting by rival high street retailers. Photograph: Tolga Akmen/AFP/Getty

Shoppers walk past a Debenhams shop in Oxford Street, London. The group’s poor performance has been blamed on increased discounting by rival high street retailers. Photograph: Tolga Akmen/AFP/Getty

 

What shape will the British high street be in this time next year? The omens are not looking good, with more gloomy news from the retail sector on Tuesday in the shape of yet another profits warning from Debenhams.

This is the third profit alert the struggling department stores group has been forced to issue this year alone. The first came in January, after a dismal Christmas, followed by another in April, as first half profits tumbled by 85 per cent.

Now the group has warned that full year profits will fall well short of the City’s already downgraded forecasts of £50 million (€57 million), instead dwindling to between £35 million-£40 million. Five years ago, the group was making profits of more than £150 million.

The unscheduled statement caught analysts on the hop, and sent Debenhams shares – rapidly approaching penny stock status – tumbling by 20 per cent at one stage.

There had been hopes the group might benefit from the woes of its major rival, House of Fraser, which is in the process of pushing through a radical store closure programme in an attempt to restore profitability. It plans to shutter more than half its 59 branches, including its flagship Oxford Street store, with the loss of up to 6,000 jobs.

If there has been any boost from its rival’s misfortunes, Debenhams chief executive Sergio Bucher wasn’t letting on. In a downbeat statement accompanying the reduced profit numbers, Bucher said he saw no improvement, at least in the short term, in the “exceptionally difficult” times the UK retail sector is experiencing.

As well as weak consumer spending, he blamed the group’s poor performance on increased discounting by rival high street retailers. Capital expenditure will be cut back and non-core assets, including a small Danish stores chain, are likely to be sold.

Debenhams has already announced plans to close 10 of its stores and to reduce the selling space in as many as 30 other branches.

The two department store operators are not alone in reducing their high street presence in the face of growing online competition, higher business rates and increased staff costs. Marks & Spencer is closing 100 stores and other chains cutting back on their retail estates include Carpetright, Mothercare and New Look.

At least Debenhams’ Bucher is still striving to turn the business round – and can take some comfort from the fact that he has a few non-core assets that can be sold to bolster finances.

A growing number of well-known retailers have had to abandon the struggle for good this year, including the UK arm of Toys R Us, the electronics and gadgets chain Maplin and, most recently, Poundworld, all of which have collapsed into administration.

Christmas is still more than six months away but it’s already clear that the festive season will be a brutal battle for survival for the remainder of the high street’s walking wounded.

Visa’s IT glitch blamed on a malfunctioning switch

The data processing systems needed to keep the global financial services sector running securely and smoothly are as complex as they are vast. But sometimes, it’s the simplest of things that can bring about a meltdown.

And so it was for Visa Europe, which earlier this month suffered a sudden and widespread IT glitch that resulted in the failure of more than five million transactions across Europe, including 2.4 million in the UK alone.

The cause of the 10-hour outage was yesterday revealed as the unexpected failure of a simple switch. It was this switch that should have switched on Visa’s huge back-up data systems as soon as problems emerged in the main network.

But, for reasons still unknown, the switch failed and millions of shoppers across Europe were left unable to pay for their petrol, their supermarket shopping or buy a round of drinks at the pub.

The cause of the failure was revealed yesterday by Visa Europe’s chief executive, Charlotte Hogg, in response to questions from the treasury select committee.

Committee chair Nicky Morgan had made it clear that if the committee were not satisfied with Hogg’s response, she’d be called to Westminster for a public grilling.

The malfunctioning switch explanation seems to have satisfied MPs, along with a fulsome apology from the Visa chief, and she will not now be summoned for questioning.

Hogg also revealed that Visa has not one, but two, huge “redundant” data centres that act as a failsafe to support its main network. Both are independently capable of handling 100 per cent of Visa’s transactions for the whole of Europe . . . but only if the switch works.

Fiona Walsh is business editor of theguardian.com

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