Debenhams has announced its first round of shop closures, naming the locations of 22 department stores that are set to close in a year’s time, putting 1,200 jobs at risk, if its proposals for a CVA win creditor backing. More are expected to follow, but the final number is yet to be confirmed.
The retailer, which was bought out of administration by its lenders earlier this month in exchange for £200m in new finance and plans for a £100m debt for equity swap, says that under CVA proposals published today, 22 of Debenhams’ estate of 166 stores would have their rent cut by about half before they then close at the end of the first quarter of 2020. It says it will try to redeploy as many staff as possible.
A further 39 stores would continue to trade at current rents. The balance of 105 stores would see varying rent reductions, of between 25% and 50%. The final number of stores to be closed will depending on future trading. Seven other non-retail sites would also see their rents reduced. Early lease breaks would be written into all affected leases for the five year term of the CVA.
Terry Duddy, executive chairman – and interim chief executive, following the exit of Sergio Bucher, of Debenhams, said: “The issues facing the high street are very well known. Debenhams has a clear strategy and a bright future, but ion order for the business to prosper we need to restructure the group’s store portfolio and its balance sheet, which are not appropriate for today’s much changed retail environment. Our priority is to save as many stores and as many jobs as we can while making the business fit for the future.”
Store closures as part of transformation plan
Debenhams says that today’s announcement is key to its Redesigned transformation plan of operating a smaller UK store estate with better quality stores. That transformation plan envisages up to 50 closures. However, all stores will remain open through the key Christmas trading period. The retailer now promises an “exciting customer proposition”.
Jim Tucker, senior restructuring partner at KPMG, who will supervise the CVA scheme if it is accepted by creditors, said: “Today’s announcement marks the next phase of Debenhams’ financial and operational restructuring strategy, following the comprehensive funding package announced at the end of March. If approved, and with the support of lenders and landlords, the CVAs will allow the business the flexibility to implement its turnaround strategy with a store estate that reflects the current UK retail environment.”
Creditors, including landlords, are expected to vote on the proposals on May 9 and 75% will need to approve the proposal in order for it to go ahead. Neither the international business or the 11 stores of the Republic of Ireland business are affected.
The stores that are set to close include branches in Altrincham, Canterbury, Wandsworth, Guildford and Witney. Debenhams’ Lodge Farm warehouse is also closing, as previously confirmed, while its three remaining warehouses may be consolidated in future.
Half-year and digital update
The news came as Debenhams published half-year results. They show group revenue of £1.2bn, down by 5.5% in the 26 weeks to March 2, compared to the same time last year. UK sales of £1bn were 5.4% down on last time, while international sales of £237.2m were down by 6.4%.
Earnings before interest, tax and asset write downs came in at £65.9m across the group, down by 35.3% on last year. In the UK market alone, earnings of £37.1m were 48.2% down on last time.
As of March 2, group net debt stood at £417.7m. Since then, the retailer has added £20m of new lending, in addition to existing facilities of £520m.
UK store sales fell by 7.4% as a result of weak footfall, although, said Debenhams, those trading in its Debenhams Redesigned format traded above the average by about 1.5%. Online sales grew by 2.5%, like-for-like, as a result, to represent 20% of all sales. The retailer said the lower growth followed its move out of the own bought furniture market and the weaker demand for more expensive goods. The retailer said it had now moved desktop to the Mobify web application as well as mobile, in a move that it says will improve the user experience for all UK digital customers.
Analyst and industry reaction
Sofie Willmott, senior retail analyst at GlobalData, a leading data and analytics company, said that culling branches now would mean that Debenhams can invest in its remaining portfolio and roll out its new format.
“With extensive media coverage of its troubles in recent months, Debenhams must start to implement visible positive changes quickly to reassure shoppers that it is bettering the shopping experience and that it is a trustworthy and reliable retailer. Recent improvements to flagship branches such as Oxford Street and Intu Lakeside demonstrate that despite being on a major cost cutting mission, the retailer has been able to enhance the look and feel of locations, adding elements to give more prominence to food and services.
“However a more enticing store environment alone will not solve all of its problems and Debenhams must revitalise its product offer if it is to win shoppers back.” She added: “Focusing on exclusive brands and collaborations, following in John Lewis’ footsteps, will give Debenhams a point of difference which will help combat the threat of online pureplays such as Amazon and ASOS with their ever-growing product ranges.’’
Catherine Shuttleworth, retail analyst and chief executive of shopper marketing agency Savvy, said: “No surprise on the announcement from Debenhams this am as they push the button to close 22 store closures. Devastating news for the high street and the employees affected. There is no other choice but to close stores if they want to business to survive however executive comment that Debenhams have a clear strategy and a bright future seems extremely optimistic at this stage. Strategically, it is difficult to understand where the retailer is heading at this point.”
Gary Carter, national officer for the GMB trade union, said: “Although many will not be surprised by the closure announcements – this is devastating news for Debenhams employees who have battled hard to keep the company afloat. They will join the tens of thousands of retail workers made redundant in recent months.
“It’s a travesty, yet this Government does nothing. It’s another hammer blow for the high street, another established name gone and more retail space left empty. The closures will have a real and negative impact on the livelihoods of the employees and on local communities.
“It’s about time this Government stopped bickering over Brexit and did something to stem retail job losses and reinvigorate Britain’s high streets.”
Image: InternetRetailing Media/Paul Skeldon