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The end of an era: Analysts review what has gone wrong for Debenhams

By Angela Gonzalez-Rodriguez

Feb 17, 2021

UK’s department stores chain Debenhams will shut downs its doors for good after 242 years a high street staple. Market experts analyse what has gone wrong with the British retailer. Boohoo’s acquisition of Debehams’ brand out of administration marks the end of an era, that of the department store chain that has been a high street’s fixture for over 240 years. Under the new management, Debenhams will become an online-only brand, what means more than 120 store closings and up to 12,000 jobs lost.

It’s worth recalling that before Boohoo plc. bought it for 55 million pounds, Debenhams plc. was valued at 1.7 billion pounds when it was floated on the London Stock Exchange in 2006 and made a record 160 million pounds profit in 2013. Today its shares are worthless after recent annual losses approached 500 million pounds.

Maureen Hinton of retail consultancy GlobalData said in a recent note to clients that Debenhams’s main challenge was that it lacked products that differentiated it, which left it exposed when dynamic new brands, many of them operating purely online, started breaking through.

“Back in the 1990s they had Designers at Debenhams, where designers like Ted Baker or Jasper Conran would do in-house ranges for them. That was a good differentiator but they never moved on,” she recalled. “They also filled their stores with concessions that weren’t anything you couldn’t buy anywhere else on the High Street.” Debenhams also failed to adapt quickly enough as more and more shopping moved online, says veteran retail analyst Richard Hyman. “It is no good having a good website if the product isn’t right. The bigger problem was the brand became irrelevant,” he pointed out.

Questionable financial decisions

Other contributing factors were poor financial decisions, which led to mounting debt and discouraged suitors. The latter was the case of JD Sports Fashion: It confirmed that it had ended discussions about buying Debenhams since “The economic landscape is extremely challenging and, coupled with the uncertainty facing the UK retail industry, a viable deal could not be reached,” joint administrator at FRP Advisory, Geoff Rowley said in a statement.

More than fifteen years ago, Debenhams sold 23 shop freeholds to property investment company British Land for 495 million pounds and then leased them back. The cash benefit proved to be short-term and soon outweighed by the costs.

Later on, Debenhams was put into administration in 2019, wiping out its shareholders. It then secured a so-called company voluntary arrangement (CVA) with its landlords, enabling it to cut its rent bill and embark on plans to close 50 of its 166 stores. That was however insufficient, and the bi-centenary retailer was put back in the hands of administrators in April 2020. Hyman points out that “Its fate was sealed by the private equity-style of swapping assets for large amounts of debt, which might just about work in a growing economy and a growing retail market. Instead it left Debenhams fighting with one arm behind its back.”

Debenhams owed about 100 million pounds when it was taken private but; by the time it returned to the stock market in 2006, that debt had engorged to more than 1 billion pounds. Noteworthy, the retailer was taken over in 2003 by a private equity consortium. The trio of funds, TPG, CVC Capital and Merrill Lynch, made huge returns from their 600 million pounds investment, collecting 1.2 billion pounds in dividends despite owning the company for less than three years.

Photo credits: Debenhams UK to this one