Debenhams could close a third of its stores in new emergency plan
today Oct 22, 2018
It's not long ago that Debenhams was saying that it would only close a limited number of its store, but it has now emerged that a large number of its locations are at risk of closure with the firm’s target of saving £100 million meaning more than 50 stores could shut.
The plan will also come with the firm axing its dividend, piling on more misery for shareholders who have already seen the value of their shares plunging.
The news comes following reports that new CFO Rachel Osborne and major shareholder Sports Direct have been pressing the retailer to clean up its balance sheet and cut costs.
The company’s annual results are due on Thursday and we assume that we'll know more information at that point. But for now, its emergency plan has apparently seen it identifying around a third of its 166 locations for the possible closure list.
In a letter last week to property industry magazine Estates Gazette, Debenhams CEO Sergio Bucher said property is one of the firm’s biggest costs and “right now, it is our biggest challenge.” He added that almost all of the company's shops are profitable at the moment, but that given current market trends, that may not be the case in three to five years.
But its ability to close underperforming stores will very much depend on the reaction of landlords. The owners of retail properties are already under pressure after a number of high-profile company failures in the last year. Many of them are currently pushing back as House of Fraser attempts to negotiate rent-free deals as the price of keeping stores open and is walking away if talks break down. For many landlords, the prospect of another big tenant vacating one of their properties, won't exactly be welcomed.
Walking away from around 50 stores won't be an uncomplicated process and will still involve the company in substantial costs. Industry observers have been speculating about how the money for this will be found. Its Danish Magasin du Nord operation is up for sale and could generate £200 million, but there are also suggestions of a rights issue, a CVA, or a combination of both.
The news of Debenhams plan comes after a string of profit warnings. Despite its recovery strategy that's very forward-looking and focused on it being a hub for experiences and ‘social shopping’, it's facing many of the same problems that the wider traditional department stores sector is having to deal with.
The failure of its major rival House of Fraser was part of those problems. And while that company’s original plan to shut over half of it stores might have helped Debenhams by removing local competition, Sports Direct’s aim of keeping as many HoF locations as possible open will hurt it. The deep discounts at House of Fraser in recent months will also have damaged Debenhams’ ability to sell goods at full price.
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