By Sandhya Anand, Staff Writer
Once a glorious retail outlet for high-class street fashion, an era comes to a sad end as Debenhams is set to close its doors permanently.
The UK-based retail giant is set to be liquidated by the rise of 2021, but it has not gone down without a fight. Ever since July 2020, it has been seeking out buyers to secure the business. Their problems are rooted in private equity ownership. Laden with huge debt, most of the company’s real estate was sold and leased back.
Ian Cheshire, who chaired Debenhams in its final years on the stock market, claimed that the long leases signed by the private equity houses left the company “like a frog in boiling water”, with costs quickly rising but sales and profits remaining stagnant.
When the company was refloated in 2006, it was valued at 195 pence but was mostly worthless when it was bought by board companies including Barclays Golden Tree, Bank of Ireland, and Silver Point Capital. They bought Debenhams back in 2009 in a pre-pack administration. Pre- pack administration refers to the insolvency procedure where a particular company negotiates a deal to sell its assets to the buyer before appointing administrators to help easen the sale process. But the retail company started plunging downhill quickly in April 2020: it was around this period that it filed for ‘light touch’ administration, which is the second time this has occurred in years. Debenhams was placed in this position by Silver Point Capital and Golden Tree. Ever since the advent of Coronavirus and the UK’s subsequent lockdown protocol deeming the stores unessential, it has had to close down 142 locations.
JD Sports was Debenhams’ final hope as it remained the last company interested in buying it out; the sale process was initiated by Investment Bank Lazard in July. The sportswear retailer has displayed a strong growth record over the past decade, which may be due to the company holding various relationships with well-known sports brands such as Nike, Adidas, and Under Armour. It also carried out a successful expansion outside of the United Kingdom.
However, the stock market was quite upset with its negotiation of buying Debenhams, with share prices falling almost 10% that week. Once the executive chairman, Peter Cowgill, dropped the deal, the share prices rose back up by 4 percent.
Stefaan Vansteenkiste, ex-CEO, claimed that this move was to protect the business, employees, and various stakeholders. Unsurprisingly, the following month he had to step down from his position but continued working for the retailer. Debenhams continued to close more stores during that period and had already requested a five-month rent holiday from landlords.
Debenhams now continues to trade in the stock market during the December Christmas peak, getting ready to wind down operations in January.
Most rivals will need to fear the huge sales that will occur due to the 124 stores putting up huge liquidation sales during the peak of the holiday shopping season.
“It is going to be a Christmas of bargains for shoppers,” said David Beadle, senior credit officer at Moody’s. “But every discounted sale made at Debenhams or Arcadia is a sale that could have gone somewhere else.”
Photo by Masaaki Komori, Unsplash