WPP and Debenhams

“Investors remain nervous about the state of the world, as reflected by yet another red day for markets across most of Europe and Asia. The chief concerns are the potential negative impacts of higher interest rates, weaker global growth and the knock-on effects of trade tariffs. “The FTSE 100 fell 0.7% in early trading on Thursday to 6,912 with pharmaceuticals, insurers and oil companies the biggest contributors to the index’s decline. Japan’s Nikkei index incurred heavy losses, falling 3.7% in a single session,” says Russ Mould, investment director at AJ Bell.

WPP

“Today’s miserable update from advertising giant WPP reveals the scale of the task facing its new chief executive Mark Read, one he will have to take on without long-standing finance director Paul Richardson from next year onwards as he heads for retirement.

“New CEOs often take the opportunity early on to rebase expectations for the business under their charge. This is often the case when they are taking over after turbulent period, something which is true at WPP where founder and former chief executive Martin Sorrell was ousted earlier this year.

“What’s concerning about the firm’s poor performance and downbeat guidance is how out of step it is with the wider peer group. The likes of Omnicom and Publicis have already delivered well-received third quarter trading statements.

“This suggests WPP is tangling with company-specific issues. Mr Read is at least not sitting on his hands, with the planned sale of the Kantar market research firm something several observers had previously suggested would be a logical move.

“He will need to come up with more action at a promised strategy update in December to convince the market he can turn the fortunes of the business around.”

Debenhams

“The retailer has done a kitchen-sink job by writing down the value of assets and cancelling the dividend. None of this should be a surprise given such actions are standard practice when a new finance director joins a troubled business. Debenhams hired former Domino’s Pizza chief financial officer Rachel Osborne two months ago and she has clearly wasted no time in getting the books in order.

“Accompanying this news is more clarity on the restructuring plan which includes reduced capital expenditure and more cost savings.

“While store closures and rent reduction plans are natural steps to take, you have to ask whether Debenhams is really shrinking to greatness – such is the term to describe businesses which become leaner and meaner – or whether it is like a bath bomb which slowly fizzes away to nothing.

“Chief executive Sergio Bucher is trying to revitalise the business as a sociable shopping experience. A new store format has been launched which includes a beauty hall, the ability to have a facial or even enjoy a gin and tonic.

“This approach should make visiting its stores a more pleasurable experience for many people. That said, you still have to remember that name of the game with retail is to get people spending money and the tills to be constantly ringing.

“Debenhams must also not forget the online channel which is perhaps the key reason why it is in a pickle in the first place. The department store concept has become far less relevant in an age when consumers can buy pretty much anything they want via their mobile phone or computer.

“Retailers are increasingly using their stores as showcases for products as well as stocking the core ranges, with shoppers finding a greater range of items online. Debenhams is planning for digital to account for 30% of its business in the future, versus 20% at the moment.

“One has to think whether this 30% target is too low given the structural shift in the market towards online sales. For example, last month retailer Next said its online division accounted for 45% of group sales and that was the fastest growing part of its business.”

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