Debenhams will begin a make-or-break year with 19 store closures this month that will result in 660 job losses on the UK’s fragile high street.
The struggling department store chain will close the sites in the space of a fortnight as it presses ahead with a rescue plan announced last year. The closures starting on 11 January are spread across the country, from Kirkcaldy in Scotland to Eastbourne on the south coast. This is just the first wave of shutdowns, as the retailer intends to pull down the shutters on a total of 50 of its worst-performing stores.
Debenhams was taken over by a group of financial investors last year and is using an insolvency process known as a company voluntary arrangement (CVA) to cull unprofitable sites and cut the rent on many of its remaining 163 shops. History shows that the retailer will face a tough road to recovery as more than half of all retailers that have resorted to a CVA have gone on to fail.
A recent report highlighted that UK high streets shed more than 140,000 jobs in 2019 due to store closures and cost cutting as the high suffered at the expense of the shift to online shopping. The problems of department stores reflect this upheaval. As more people buy goods on their phones or laptops, the number of visitors to high streets is falling just as the cost of running large stores is rising. Shoppers have also reined in spending on clothing and household goods due to the squeeze on spare cash and a shift towards renting rather than owning homes.
The 19 stores on Debenhams closure list add up to about 1.3m sq ft or roughly a tenth of Debenhams 14.3m sq ft of retail floor space, according to analysts at Radius Data Exchange.
James Child, the head of retail and industrial research at commercial property magazine EG, said department stores were faced with “perilous headwinds”.
“They having the USP of selling everything, but figuring out how to sell that concept to shoppers when they can access everything online is a huge test,” he said.
Debenhams is not the only department store chain in trouble, with even the mighty John Lewis struggling to adapt to new shopping habits. The employee-owned department store chain made a loss in the first half of its financial year and the weekly sales update published before Christmas point to challenging trading conditions.
The future also looks difficult for House of Fraser which is now part of Mike Ashley’s listed retail empire Frasers. At the end of last year the maverick businessman set the scene for retrenchment, pointing the finger at business rates and stating: “We cannot keep loss-making stores open”. Seven stores have closed since Ashley bought it in 2018, leaving 52 branches, but property industry sources suggest the chain will halve in size.
Richard Hyman, the independent retail analyst, predicted that 2020 would be a defining year for many retailers. “Debenhams and House of Fraser will not end this year in the shape they are in today; at best they will be much smaller and at worst they won’t exist at all.” He suggested the owners of Debenhams – a consortium of banks and hedge funds – had delayed facing the grim reality: “In a way it has become a zombie.”
Debenhams said job losses from this first major round of closures were lower than originally anticipated and it was hopeful some staff could be redeployed. Three stores: York, Haverfordwest and Orpington closed at the end of 2019 but the main group will close in three stages, beginning next Saturday.
The Debenhams chief executive, Stefaan Vansteenkiste, said: “We are working hard to implement the transformation of Debenhams. Despite a challenging retail environment, thanks to our colleagues’ hard work and our investor group’s commitment we are progressing with our turnaround.”
Debenhams has recently recruited experienced retail executives, including Mark Gifford, a former finance director of House of Fraser, as chairman and former Argos boss John Walden, to its board.
It was reported last month that Debenhams had approached landlords for fresh rent cuts. It is thought the outcome of these talks will determine the fate of other stores destined to close. Guildford and Staines, both in Surrey, which were on the original list announced last April, are staying open for the time being. The aim is still to close a total of 50 stores but after this month no more are planned until 2021.
The closures come as high street chains prepare to update the City on the important Christmas trading period when many retailers make most of their profits. Last year’s rescue deal means Debenhams is no longer listed on the stock exchange so does not have to publish any financial information. Its well-publicised woes would have knocked confidence in the brand but trade, in its stores anyway, is thought to have held up well in the run up to Christmas.