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Debenhams promises business as normal for customers and staff following administration

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Debenhams says it will be business as normal for its staff and its customers after it was sold to its lenders in a pre-pack administration, ending Mike Ashley and Sports Direct’s hopes of taking over the running of the multichannel retailer. The retailer now plans to press on with a transformation plan focused on putting social and mobile at the heart of the shopping experience, while closing some of its 165 stores. The retailer has said that it expects 30% of its business to take place online in the future, primarily via mobile devices.

Today’s move into administration affects the listed Debenhams company but not the Debenhams Retail and Magasin du Nord businesses which the listed company owned. Those are the companies that staff and suppliers have relationships with and those relationships will be unaffected by the administration, the new Debenhams Group said. Shares in Debenhams plc were suspended this morning and will be cancelled tomorrow morning.

The news came after Sports Direct, which owned 29.7% of shares in Debenhams made a series of offers to provide funding to the company in exchange for installing its founder and chief executive Mike Ashley as Debenhams’ chief executive. But a formal takeover bid was not forthcoming by a deadline set for last night. Debenhams was placed into administration this morning and administrators from FTI Consulting concluded that the best interests of its creditors were served by a sale to its lenders, trading as Celine Newco I.

Terry Duddy, chairman of Debenhams, a Leading retailer in IRUK Top500 research, said: “It is disappointing to reach a conclusion that will result in no value for our equity holders. However, this transaction will allow Debenhams to continue trading as normal, access the funding we need and proceed with executing our turnaround plans whilst deleveraging the group’s balance sheet. We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.

“In the meantime, our customers, colleagues, pension holders, suppliers and landlords can be reassured that Debenhams will now be able to move forward on a stable footing. I would like to thank them all for their recent and continuing support.”

The new ownership will give Debenhams Group access to £200m in funding from its new owners and it says it will continue with its transformation plans, including reducing the number of stores that it operates. 

In October, Debenhams said that it planned to close up to 50 under-performing stores over the next three to five years, from a store estate of 165 stores. It also said that it expects 30% of its business to take place online in the future, primarily via mobile devices. In its last full year, 20% of sales took place online.  At the time, chief executive Sergio Bucher said it was “taking decisive steps to strengthen Debenhams in a market that remains volatile and challenging,” adding that there were tough decisions to take on stores where financial performance was likely to deteriorate. 

Commenting on today’s news, Sofie Willmott, senior retail analyst at data and analytics business GlobalData, said: “The cash injection from the new owners will not be enough to turn around the failing department store’s fortunes. Although Sergio Bucher’s Redesigned strategy, announced almost two years ago, addresses the retailer’s problem areas, it has not been rolled out fast enough and as a result most consumers have seen little change at Debenhams, other than a minor adjustment to its logo. 

“Following weeks of bickering with Sports Direct, Debenhams has escaped the hands of Mike Ashley with any plans for a House of Debenhams now firmly up in smoke. Given the changes to House of Fraser since its acquisition by Sports Direct in August 2018 with stores looking empty of both stock and shoppers, Debenhams has indeed been rescued by lenders – though store closures are inevitable. The business will still require significant investment to stand a chance of gaining consumer interest.”

Image courtesy of Debenhams

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