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February 12, 2019

Debenhams in new sourcing partnership with Li & Fung

By Beth Wright

Debenhams is to develop a new strategic sourcing partnership with global sourcing giant Li & Fung in a move CEO Sergio Bucher says will be a “key part” of the struggling UK department store retailer’s turnaround plan.

In an announcement today (12 February), Debenhams said it has entered an agreement in principle with Li & Fung regarding the partnership, which is expected to cover a material part of its own-brand sourcing over time. 

The retailer added the move will deliver benefits through improved product quality and lead-times, higher achieved margins, and better working capital efficiency. Initial orders under the agreement are expected to begin shortly.

Hong-Kong based sourcing giant Li & Fung is working toward “the supply chain of the future” as it builds the LF Digital Platform, a fully-integrated digital platform that connects suppliers, customers and other partners with end-to-end visibility.

The group, which is focused on “transforming the supply chain through three things: speed, innovation and digitalisation”, taps into a network that includes 15,000 suppliers in around 60 countries and 8,000 customers in 100 countries.

Meanwhile, Debenhams said it has also secured a GBP40m(US$51.4m) cash injection after extending credit facilities with its lenders. The new funds will “act as a bridge to facilitate a broader refinancing and recapitalisation,” the retailer says.

The department store retailer has been struggling of late, posting what one analyst called a “dismal” set of results for the peak Christmas trading period, after shares in the company plunged by more than one-fifth in November after reports emerged of difficulties with suppliers.

Its tribulations saw Sports Direct boss and retail tycoon Mike Ashley offer of a GBP40m (US$50.3m) interest-free loan in December, a gesture Debenhams turned down prompting a strongly-worded letter to Bucher from Ashley expressing his concern that the board does not seem to appreciate the position Debenhams is in and its responsibility to shareholders.

In addition, former chairman Sir Ian Cheshire was forced to resign last month as two of the retailer’s major shareholders – one of whom was Ashley – voted against his re-election to the board at the company’s AGM.

Today’s news, however, sent shares soaring 34.59% and represents the first step in the retailer’s refinancing process, according to Bucher.

“The support of our lenders for our turnaround plan is important to underpin a comprehensive solution that will take account of the interests of all stakeholders, and deliver a sustainable and profitable future for Debenhams,” he says.

“In addition, the partnership agreement we are announcing today with Li & Fung will be a key part of our turnaround plan. It gives us access to state-of-the-art technology in the LF Digital platform, providing end-to-end visibility across our supply chain. This will help us anticipate and respond more quickly to trends and our customers’ preferences, as well as delivering better quality product.”

See also: How Li & Fung is ramping up in the race for speed

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