Debenhams store closures put at least 1,200 jobs at risk

Struggling retailer plans to shut a total of 50 shops but has yet to confirm all locations

Debenhams has dealt a fresh blow to Britain’s struggling high streets as it announced plans to close 22 department stores in 2020, putting 1,200 jobs at risk.

 

The retailer intends to shut a total of 50 of its worst-performing stores but has yet to confirm the locations of the remaining shops at risk. The full closure plan, which equates to one in three of its stores, is expected to trigger several thousand job losses.

 

Terry Duddy, the executive chairman of Debenhams, which was taken over by its banks a fortnight ago, said it had too many stores at a time when shoppers were increasingly buying online. “For the business to prosper, we need to restructure the group’s store portfolio and its balance sheet, which are not appropriate for today’s much-changed retail environment. Our priority is to save as many stores and as many jobs as we can, while making the business fit for the future.”

 

At the start of this month, Debenhams, which employs 25,000 people, was put through a pre-pack administration that wiped out shareholders, including Mike Ashley’s Sports Direct. Its new owners, who are a consortium of banks and hedge funds, have launched the major store-closure programme via an insolvency process known as a company voluntary arrangement (CVA).

 

In March, the indebted chain secured a £200m package of new loans and so far Debenhams’ 166 UK stores have continued to trade as normal. The first tranche of 22 stores will shut after trading through the key Christmas period.

 

The towns and cities affected by the closures include places such as Ashford in Kent and Kirkcaldy in Scotland, already hit hard by Marks & Spencer’s decision to shut 100 stores.

 

A growing number of retailers, struggling as sales shift online, are using CVAs to scale back their high street presence and reduce rent bills. Considered a last resort for ailing chains, the plan must be signed off by landlords and other creditors. A recent report showed chain stores are disappearing from UK high streets at the fastest rate in at least nine years as shoppers and rein in spending.

 

The use of the insolvency procedure means that until the CVA is approved by the retailer’s creditors its pension schemes will automatically be assessed for a rescue by the Pension Protection Fund (PPF), the industry-funded pensions lifeboat. If the plan is approved at a vote on 9 May, its pensioners will continue to be supported by the restructured company.

 

A spokesman for the Debenhams Pension Schemes said pensions would continue to be paid as usual during the CVA consultation period: “The CVA does not seek to compromise or reduce the employer’s obligations to the schemes. The trustees hope the CVA will be successful and … will ensure that the schemes are supported in the long term.”

 

The CVA, which is being handled by KPMG, is asking Debenhams’ landlords to agree to substantial rent cuts. It wants to remain on the same deals for 39 stores but it wants rent reductions of between 25% and 50% on the other 127. A CVA requires the approval of creditors holding at least 75% of a company’s debts to succeed.

 

KPMG’s Jim Tucker, who is overseeing the process, sought to reassure the retailer’s staff and employees: “For the avoidance of doubt, no stores will close on day one, suppliers will continue to be paid on time and in full, and terms of employment are not impacted.”

 

Jonathan De Mello, the head of retail consultancy at Harper Dennis Hobbs, said: “Debenhams was always an accident waiting to happen, given the large volume of underinvested stores in many locations that are now too small to sustain a department store as shopper habits have changed.”

 

De Mello added that closing 50 stores may not be enough to safeguard the retailer’s future. “It’s my view that around 100 stores should be closed. Arguably, the likes of Primark provide more of a draw to a town centre than Debenhams. When the Primark store in Belfast was closed for a month due to a fire, footfall in the city dropped by 30%. The closure of a Debenhams for a similar time period would definitely not have anywhere near such a profound effect.”