Debenhams has this morning (26 April) announced plans for a company voluntary arrangement (CVA) that would see the UK department store retailer shutter 22 locations by 2020.
The retailer, which is currently in administration and without a CEO since the departure of Sergio Bucher, has announced details of two proposed CVAs, one relating to Debenhams Retail Limited, the main trading entity, and one relating to Debenhams Properties Limited.
It says the actions will help keep Debenhams on a stable financial footing and ensure the future of the company.
“The issues facing the UK high street are very well known. Debenhams has a clear strategy and a bright future, but in order for the business to prosper, we need to restructure the group’s store portfolio and its balance sheet, which are not appropriate for today’s much changed retail environment,” says executive chairman Terry Duddy. “Our priority is to save as many stores and as many jobs as we can, while making the business fit for the future.”
The CVA proposals provide a mechanism to restructure the store estate in line with the plan outlined by management in October 2018 to reduce the current 166 UK store portfolio by closing about 50 stores. The first stage of that programme proposes up to 22 store closures in 2020.
Further store closures will be confirmed in due course with the final number dependent on future trading performance; discussions with landlords regarding changes in lease terms and rental levels; and with local authorities regarding business rates.
About 1,200 people work in the stores affected.
However, all Debenhams stores are due to remain open during 2019, including through Christmas peak trading.
While the closure of the Lodge Farm warehouse has already been confirmed, three continuing warehouse facilities could be consolidated further as a result of the restructuring.
Assuming the CVA becomes effective, a fund of a maximum value of GBP25m (US$32.3m) will be available for those creditors compromised by the CVA to participate in future growth of the UK business.
To become effective, each CVA proposal requires 75% or more in value of the creditors voting at the Creditors’ Meeting on the resolutions to approve the CVA and for more than 50% of the total value of the unconnected creditors to vote in favour. The meeting will be held on 9 May.
Tough UK trading environment
Sofie Willmott, senior retail analyst at GlobalData, notes Debenhams’ proposed CVA gives the retailer a greater opportunity to withstand the tough UK trading environment.
“Although Debenhams has been slow to react to the changing retail landscape as spend shifts online, like many of its competitors such as Marks & Spencer and the Arcadia group, culling branches now will mean it can invest in its remaining portfolio and roll out its new format,” she says.
But Willmott warns Debenhams must start to implement visible positive changes quickly to reassure shoppers that it is bettering the shopping experience and that it is a trustworthy and reliable retailer.
“A more enticing store environment alone will not solve all of its problems and Debenhams must revitalise its product offer if it is to win shoppers back. With consumers putting off non-essential purchases, products need to feel like ‘must-haves’ to convince shoppers to buy. Focusing on exclusive brands and collaborations, following in John Lewis’ footsteps, will give Debenhams a point of difference which will help combat the threat of online pureplays such as Amazon and Asos with their ever-growing product ranges.”
Catherine Shuttleworth, retail analyst and CEO at shopper marketing agency Savvy, concurs, noting the retailer has no other choice but to close stores if it want the business to survive.
The news comes as Debenhams revealed a 5.3% drop in group gross transaction value (GTV), or net sales, for the 26 weeks to 2 March, compared to last year. Like-for-like sales were down by 5.2%, while UK sales declined by 5.4%, and international sales by 4.8%.
Group EBITDA, before exceptional items, declined 36.3% to GBP65.9m in the same period, as a result of lower sales and a 150 basis point decline in gross margins, reflecting an adverse sales mix and tight inventory management.
Group net debt as at 2 March 2019 stood at GBP417.4m.
