Debenhams is to start winding down its business after its planned sale to JD Sports was pulled overnight. The multichannel retailer says it will continue to trade through its 124 UK stores and online as it looks to clear both its current stocks and those it has contracted to buy. About 12,000 jobs are thought to be at risk as a result of today’s news.
At the end of the process, if no further offers have emerged, the retailer, ranked Top50 in RXUK Top500 research, will close its UK business – although its Danish store chain, Magasin du Nord, continues to operate independently.
JD Sports this morning confirmed that it had ended talks about a potential acquisition with the retailer. The news came soon after the Arcadia Group announced its administration. Arcadia Group has the largest single number of concessions within Debenhams and the news of its failure dealt a serious blow to Debenhams in turn.
Debenhams has been trading in administration since the start of the Covid-19 pandemic. That administration came exactly a year after a previous administration and illustrates the difficulties faced by department stores, a category that has seen business move online more quickly than others.
Today, Geoff Rowley partner at FRP Advisory and joint administrator to Debenhams, says: “All reasonable steps were taken to complete a transaction that would secure the future of Debenhams. However, the economic landscape is extremely challenging and, coupled with the uncertainty facing the UK retail industry, a viable deal could not be reached. The decision to move forward with a closure programme has been carefully assessed and, while we remain hopeful that alternative proposals for the business may yet be received, we deeply regret that circumstances force us to commence this course of action.
“We are very grateful for the efforts of the management team and staff who have worked so hard throughout the most difficult of circumstances to keep the business trading. We would also like to thank the landlords, suppliers and partners who have continued to work with Debenhams through this turbulent period and can reassure them that all contractual obligations entered into in the administration period will be met in full.”
Commenting, Richard Lim, chief executive of analyst Retail Economics, says: “We cannot overstate the significance of this collapse given the vast property portfolio, number of jobs impacted and the reverberations felt across the industry.
“In a week that has seen the collapse of the Arcadia Group, this is a truly devastating week for the high street. This puts up to 25,000 jobs at risk in just a couple of days.
“The reality is that Debenhams has been outmanoeuvred by more nimble competitors, failed to embrace change and was left with a tiring proposition. The impact of the pandemic has accelerated its demise but underlying issues within the business were the root cause.”
Setting the context: how department stores have struggled to stay relevant in a digital time
When they launched, during the 19th and 20th centuries, many of today’s department stores were no doubt the most convenient way that shoppers could buy at the time. They could buy a wide range of goods without ever leaving the store. But the internet has changed all that, bringing the extra convenience of buying a range of goods from a single store, without ever leaving the house.
The category has seen its sales move online faster than other categories in recent years. The acceleration of the shift online during the Covid-19 pandemic has brought that into sharp focus. ONS figures for October – when shops were open but trading under social distancing rules – show that department store online sales were 87.2% higher than at the same time last year, and 0.9% higher than the previous month. Online accounted for 30.2% of sales in the category – ahead of the 28.5% seen across UK retail, following a 60% rise in online spending that month compared to a year earlier. That represents a huge change in the space of a year: in October 2019, ONS figures estimated that 16.2% of department store sales took place online, while 19.2% of all UK retail sales took place online.
Debenhams – as with other department stores – has worked hard on multichannel strategies that aimed to keep the category relevant at a time when more people wanted to do more of their shopping online. But it has struggled to attract enough in-store customers to justify the cost of operating a large estate of stores and in recent years it has closed many, often via administrations and CVAs (company voluntary agreements). In 2019, Debenhams had 166 stores, as it unveiled plans to close 22 in early 2020, and it has since shrunk its estate further to today’s 124.
Debenhams, founded in 1813, has in recent years refurbished its beauty halls and launched an active online beauty community as it looked to give shoppers a reason to come in-store when they could just as easily buy online. It focused on connecting with shoppers via a social and mobile-first strategy, and launched initiatives such as, from 2018, hosting the Doddle click, collect and returns business in its department stores. Most recently it has launched virtual beauty consultations via social media, as it looked to stay in touch with shoppers while stores were closed.
But the retailer, which has gone into administration twice in the last two years, was always struggling to keep up as customers opted ever more often to buy online for home delivery or convenient click and collect. The Covid-19 pandemic, which forced its shops to close for 12 weeks between March and June and again in November, and office workers to stay at home rather than travelling to city centres, appears to have delivered the final blow, both directly to the business and through the failure of Arcadia Group overnight, whose brands had concessions within branches of Debenhams.