Debenhams: store of no value 

Shoppers in Britain decided some time ago to steer clear of the nation’s department stores. The coronavirus lockdown simply makes that stance obligatory. Declining footfall and rising rents have already pushed many shops towards the brink. A total shutdown ensures their demise. Debenhams is trying not to be one of the first casualties.

Having just completed one administration that started this time last year, the department store said on Monday that it would begin another.

Under the previous administration, debt owners including US hedge fund Silver Point took control. Existing Debenhams equity holders were wiped out and a subsequent insolvency arrangement with landlords slashed rents by half. The impediment was billionaire Mike Ashley, owner of 30 per cent of Debenhams shares. 

Mr Ashley opposed the administration and suggested his own (rejected) restructuring plan. He also supported landlords in rejecting the rent reductions. Debenhams claims that Mr Ashley wanted to ward off any competition to his own struggling department store House of Fraser. The return to administration by Debenhams will stop further hostile action for now.

Like many businesses, Debenhams’ ultimate survival depends on how long the coronavirus lockdown continues. With all 142 of its physical stores temporarily closed, sales will disappear. But the government’s furlough wage scheme will help it to reduce overheads. 

A new plan has now been agreed with debt holders, who had already provided additional liquidity to get the group through Christmas trading last year. They hope to convert some £100m of debt liabilities into equity and then eventually into an investment profit.

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It is a bold gambit. There are still a few more levers to pull. More permanent store closures is one. Existing plans would have reduced the number to about 100. Rivals House of Fraser and John Lewis have only about 50 stores each. Yet reductions to keep the most profitable Debenhams stores is a gamble that could well work. The Debenhams saga is not over.

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