Debenhams says it will continue to trade through its 124 UK stores and online to clear its current and contracted stocks

Debenhams says it will continue to trade through its 124 UK stores and online to clear its current and contracted stocks

UK department store chain Debenhams is to begin a wind-down of its operations after JD Sports Fashion, Britain's largest sportswear retailer, ended rescue talks this week and administrators failed to find an alternative buyer for the business.

The decision, announced this morning (1 December), could see all 12,000 employees lose their jobs when the retailer's 124 UK stores cease trading.

Debenhams entered administration for the second time in April in order to protect the company against claims from creditors during the Covid-19 pandemic.

JD Sports was in talks with Debenhams and its administrators FRP Advisory about a rescue deal but in a statement today said discussions regarding a potential acquisition of the UK business have now been terminated.

The news follows Topshop owner Arcadia's collapse into administration yesterday, whose brands feature heavily in Debenhams' stores.

In its statement, Debenhams confirmed its administrators had concluded the initial sale process that was part of their assessment of options for the UK business in administration. Those options included a sale of all or part of the UK business; a further restructure of Debenhams' operations to go forward on a standalone basis; or the orderly wind-down of the Debenhams business.

"The sale process has not resulted in a deliverable proposal," it said. "Given the current trading environment and the likely prolonged effects of the Covid-19 pandemic, the outlook for a restructured operation is highly uncertain. The administrators have therefore regretfully concluded that they should commence a wind-down of Debenhams UK, whilst continuing to seek offers for all or parts of the business."

Debenhams added it will continue to trade through its 124 UK stores and online to clear its current and contracted stocks.

"On conclusion of this process, however, if no alternative offers have been received, the UK operations will close," it noted.

The wind-down does not impact Magasin du Nord in Denmark, which continues to operate independently.

Blow for UK high street

Pippa Stephens, retail analyst at GlobalData, says that while Debenhams and Arcadia were both already in trouble before the pandemic hit, the drastic increase in online spending and diminished demand for fashion as budgets are squeezed, has sped up inevitable changes in the UK retail sector.

"Arcadia's brands have an opportunity to survive if broken up but after operating in its second round of administration for some time, Debenhams' hopes of living on are slim.

"The likely impending closures of some, if not all of, Arcadia's and Debenhams' stores is yet another huge blow for the UK high street, with the expected closure of 124 Debenhams stores leaving a surplus of empty units for landlords to deal with. With both of these players also having a significant presence within major shopping centres, operators will now struggle to fill these units in order to stop their locations from looking sad and depleted, causing particular problems for those already in financial turmoil such as Intu.

"While many of these empty units may be converted into office space, as the shift to online shopping reduces the need for physical stores, Mike Ashley's Frasers Group may be interested in taking some stores. However, with the group having a history of pushing rent reductions and delaying payments, this could add unwelcome pressure for landlords. Although JD Sports has pulled out of its rescue bid for Debenhams, it may also now decide to take on some of these units in order to expand its presence on the high street, while the spaces could also be desirable for Next, since the retailer has already opened beauty halls in some of the former Debenhams sites."

Richard Lim, chief executive of Retail Economics, adds: "We can not 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."

Shore Capital analyst Greg Lawless and Clive Black believe it appropriate for JD Sports to consider opportunistic corporate development opportunities in the sector.

"JD Sports has a strong track record of acquiring under managed retail assets and extracting value for shareholders by applying its retail disciplines. In the case of Debenhams the risk/reward balance may have tipped to the former. Minority institutional shareholders were pretty vocal in their confusion around the potential Debenhams deal and this was reflected firstly in the sell off last week in the share price, and the rebound (up 6% yesterday) as news of beleaguered Arcadia's demise made the headlines."