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Debenhams to be wound down putting 12,000 jobs at risk – business live Debenhams to be wound down putting 12,000 jobs at risk – business live
(32 minutes later)
Rolling coverage of the latest economic and financial news, with 25,000 jobs now at risk across two UK retailersRolling coverage of the latest economic and financial news, with 25,000 jobs now at risk across two UK retailers
Retail analyst Patrick O’Brien of GlobalData has a great example of how Debenhams’ former private equity owners trapped the firm in expensive property deals.
Back in 2005, Debenhams agreed a £495m sale-and-leaseback deal with property firm British Land (details here).
Debenhams sold 23 freeholds and long leaseholds on stores across the UK, binding itself into 30-year leases (or 35 years for London’s Oxford Street and Manchester high street stores).
The deal also guaranteed annual rent increases (2.5% compound, or 3% from March 2010 to 2014).
O’Brien points out that the warning signs from online shopping were already obvious.
A year later, Debenhams was floated in the stock market again. But some in the City were already wary, and its private equity owners were forced to price its shares at the bottom of the range to get the deal away.
As my colleague Julia Finch wrote at the time:
Shadow business minister Ed Miliband tweets:Shadow business minister Ed Miliband tweets:
Covid-19 may have accelerated the crisis in UK retail, but the problems at Debenhams (like Arcadia) predate the pandemic.Covid-19 may have accelerated the crisis in UK retail, but the problems at Debenhams (like Arcadia) predate the pandemic.
Back in April, Debenhams achieved the unwelcome distinction of filing for administration twice in 12 months.Back in April, Debenhams achieved the unwelcome distinction of filing for administration twice in 12 months.
The first administration, in 2019, wiped out shareholders (including Mike Ashley’s stake), and led to scores of store closures - cutting Debenhams workforce from 25,000 in March 2019 to just 13,000 today.The first administration, in 2019, wiped out shareholders (including Mike Ashley’s stake), and led to scores of store closures - cutting Debenhams workforce from 25,000 in March 2019 to just 13,000 today.
That 2019 collapse was triggered by Debenhams’ £560m debt mountain, run up by private equity owners before it was floated on the stock market in 2006 [one banker later dubbed Debenhams a ‘bomb waiting to go off’].That 2019 collapse was triggered by Debenhams’ £560m debt mountain, run up by private equity owners before it was floated on the stock market in 2006 [one banker later dubbed Debenhams a ‘bomb waiting to go off’].
Such a debt pile, added to long leases on high street stores, doesn’t give retailers much of a chance of innovating and keeping pace with online rivals.Such a debt pile, added to long leases on high street stores, doesn’t give retailers much of a chance of innovating and keeping pace with online rivals.
As Richard Lim, chief executive at Retail Economics, puts it today:As Richard Lim, chief executive at Retail Economics, puts it today:
Arcadia’s collapse last night pushed Debenhams closer to the brink, explains Julie Palmer, partner at Begbies Traynor, the corporate restructuring firm.Arcadia’s collapse last night pushed Debenhams closer to the brink, explains Julie Palmer, partner at Begbies Traynor, the corporate restructuring firm.
JD Sports then delivered the final blow by abandoning rescue talks this morning.JD Sports then delivered the final blow by abandoning rescue talks this morning.
ITV’s Joel Hills also reckons there were several reasons why JD Sports got cold feet:ITV’s Joel Hills also reckons there were several reasons why JD Sports got cold feet:
JD Sports’ decision to walk away from rescue talks with Debenhams this morning was the trigger to start winding the department store chain down, my colleague Sarah Butler writes:JD Sports’ decision to walk away from rescue talks with Debenhams this morning was the trigger to start winding the department store chain down, my colleague Sarah Butler writes:
Lucy Powell MP, Labour’s Shadow Minister for Business and Consumers, says the government must protect the thousands of workers at risk at Debenhams and Arcadia.Lucy Powell MP, Labour’s Shadow Minister for Business and Consumers, says the government must protect the thousands of workers at risk at Debenhams and Arcadia.
That includes pushing Sir Philip Green to tackle Arcadia’s pension scheme deficit, Powell insists, saying:That includes pushing Sir Philip Green to tackle Arcadia’s pension scheme deficit, Powell insists, saying:
Last year, the Green family did agree a pension deficit reduction schedule with regulators, including £100m from Lady Tina Green.Last year, the Green family did agree a pension deficit reduction schedule with regulators, including £100m from Lady Tina Green.
But the Arcadia scheme is still in deficit, estimated at £350m.But the Arcadia scheme is still in deficit, estimated at £350m.
That could mean members who have not reached the scheme‘s normal retirement age face a 10% cut to their pensions once the scheme is placed in the UK pensions lifeboat.That could mean members who have not reached the scheme‘s normal retirement age face a 10% cut to their pensions once the scheme is placed in the UK pensions lifeboat.
A our financial editor Nils Pratley says - the Greens have a moral obligation to Arcadia’s staff, and can hardly “plead poverty from the deck of a large motor yacht”.A our financial editor Nils Pratley says - the Greens have a moral obligation to Arcadia’s staff, and can hardly “plead poverty from the deck of a large motor yacht”.
The FT’s Jonathan Eley fears that Debenhams will go the same way as Woolworths, another high street stalwart, which collapsed after the financial crisis.The FT’s Jonathan Eley fears that Debenhams will go the same way as Woolworths, another high street stalwart, which collapsed after the financial crisis.
My colleague Zoe Wood points out that 25,000 retail workers are directly caught up in the crisis at Arcadia (Topshop, Evans, Burton, Miss Selfridge...) and Debenhams.My colleague Zoe Wood points out that 25,000 retail workers are directly caught up in the crisis at Arcadia (Topshop, Evans, Burton, Miss Selfridge...) and Debenhams.
The decision to start winding up Debenhams comes just 14 hours after Arcadia fell into administration, creating a real shock across the UK retail sector.The decision to start winding up Debenhams comes just 14 hours after Arcadia fell into administration, creating a real shock across the UK retail sector.
Here’s George MacDonald of Retail Week:Here’s George MacDonald of Retail Week:
It’s simply desperate news for thousands of retail staff across the country, as the BBC’s Sima Kotecha tweets:It’s simply desperate news for thousands of retail staff across the country, as the BBC’s Sima Kotecha tweets:
Here’s Reuters’ early take on the winding up of Debenhams:Here’s Reuters’ early take on the winding up of Debenhams:
Geoff Rowley of FRP Advisory, a joint administrator to Debenhams, says administrators ‘deeply regret’ the decision to start closing the company.Geoff Rowley of FRP Advisory, a joint administrator to Debenhams, says administrators ‘deeply regret’ the decision to start closing the company.
Rowley also hasn’t given up hope that a buyer could be found -- but says a ‘viable deal’ couldn’t be reached in the current economic climate.Rowley also hasn’t given up hope that a buyer could be found -- but says a ‘viable deal’ couldn’t be reached in the current economic climate.