Retail

Drastic measures are fine, but Debenhams also needs a solid plan


Christmas matters for all retailers, but for some it matters more. After announcing plans to close 50 stores, the stakes are now especially high for Debenhams.

Conditions in the high street could hardly be tougher, with structural change resulting from the move to online shopping meshing with a cyclical downturn caused by a squeeze on living standards and rising costs.

Debenhams has been slow to adjust to this more bracing environment. Online business accounts for a fifth of its sales, compared with two-fifths for John Lewis. Given its repeated profit warnings this year, the previous plan to close just 10 stores never looked like being the end of the story.

The company has now finally acknowledged that it is battling to survive. Almost a third of its stores will go and landlords will be asked to reduce rents for those that remain. The dividend has been axed and capital spending will be halved.

The markets seemed to approve of the company’s management deciding at last to throw the kitchen sink at things. The share price rose by 7%, but that needs to be put into context. At 9p, it is down 75% in the past year and stands at a level that suggests investors think it is touch and go whether the company will survive.

On the plus side, the chances of Debenhams negotiating lower rents look a lot better than they would have done five years ago. There are plenty of empty units on high streets already and department stores have a big footprint. Finding new tenants for such vast areas of floorspace is not easy, so landlords have a choice: reduce the rents or risk having an empty and hard-to-fill store on their hands.

But lower rents alone are not going to be enough to turn around Debenhams’ fortunes. And while all bricks and mortar retailers would welcome an “Amazon tax” from Philip Hammond in next week’s budget, that would not make a material difference either.

Already, there is much speculation that if the financial position does not improve, Sports Direct’s boss, Mike Ashley, will launch a takeover bid with a view to merging Debenhams with his newly acquired House of Fraser stores. That looks a lot easier on paper than it is likely to be in practice. It would be quite a project to stitch the two chains together and make them viable.

For now, though, the question is whether the Debenhams management has a plan for saving the business, and it hasn’t done a lot to suggest it has. The emergency package of measures that has been announced buys time, but not all that much.

Labour won’t risk higher taxes

Theresa May and John McDonnell don’t often see eye to eye, but on one thing they are agreed. The public has had enough of spending cuts.

Hard though it is to recall now, the public was receptive to the idea of a bit of belt-tightening when George Osborne first announced his austerity plans in 2010. But voters were never told that the squeeze would go on until the mid-2020s, and sometime between the general elections of 2015 and 2017 austerity fatigue set in.

Osborne’s plan was a dud. It resulted in slower growth, and a slower pace of deficit reduction. The deep, early cuts to public investment were especially harmful. Yet turning the clock back to 2010 and reversing all the cuts would be mightily expensive. The price tag would be more than £108bn, McDonnell, the shadow chancellor, said on Thursday.

Clearly this is not going to happen while May is in Downing Street, but it is unlikely to happen if Jeremy Corbyn becomes prime minister either.

John McDonnell



John McDonnell calls on Philip Hammond to admit the hardship that eight years of Conservative austerity have inflicted on voters. Photograph: Kirsty O’Connor/PA

Labour was committed to £49bn of spending pledges at the 2017 election, matched by £49bn of tax increases, and would only borrow for investment, so if McDonnell wanted to reverse post-2010 austerity in its entirety it would involve more than doubling his tax increases. That would mean extending their scope beyond the current soft targets – companies and the 5% highest earners – and hitting those further down the income scale.

That, however, would be a political risk because until now Labour has sought – with some success – to persuade voters that they can have a free lunch; higher spending with somebody else paying for it. All of which helps to explain why McDonnell is being careful not to commit himself to finding an extra £108bn. Voters are indeed sick of austerity, but that doesn’t mean they are gagging to pay higher taxes.



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