Graeme Wearden 

Debenhams to be wound down putting 12,000 jobs at risk – as it happened

Rolling coverage of the latest economic and financial news, with 25,000 jobs now at risk across two UK retailers
  
  

Debenhams on Oxford Street in London.
Debenhams on Oxford Street in London. Photograph: Graeme Robertson/The Guardian

Closing summary

The crisis gripping the UK’s high street has intensified today, with 25,000 jobs now at risk across two major chains.

Debenhams, the 242-year old department store chain, is facing liquidation in the second major retail collapse in as many days.

Administrators announced this morning they are starting the process of winding down Debenhams, after attempts to find a buyer failed. Stores will remain open until stock has been cleared, but then -- unless a last-minute rescue is achieved -- they will shut.

Debenhams employs around 12,000 people at 124 stores around the country, who now face a very worrying time in the run-up to Christmas.

The news came after JD Sports walked away from talks about an emergency rescue. That blow came hours after Arcadia - which operates concessions across Debenhams - collapsed into administration, putting 13,000 jobs at risk.

Geoff Rowley of FRP Advisory said Debenhams’ administrators had done their best to find a deal:

“All reasonable steps were taken to complete a transaction that would secure the future of Debenhams. However, the economic landscape is extremely challenging and, coupled with the uncertainty facing the UK retail industry, a viable deal could not be reached.

The decision to move forward with a closure programme has been carefully assessed and, while we remain hopeful that alternative proposals for the business may yet be received, we deeply regret that circumstances force us to commence this course of action.

Lucy Powell MP, Labour’s Shadow Minister for Business and Consumer, said the government must urgently set out how it plans to support the people affected by the collapse of both companies.

Powell also called for ministers to push Sir Philip Green to address the estimated £350m deficit in Arcadia’s pension fund.

As did London Mayor Sadiq Khan.

Chancellor Rishi Sunak said that the government “stands ready” to help workers at Arcadia and Debenhams.

Cabinet minister Michael Gove blamed management ‘missteps’ for Arcadia’s collapse, while declining to point the finger directly at Sir Philip Green.

Analysts pointed out that Debenhams problems also predated the pandemic, and included

Faced with the threat of rising unemployment, the TUC urged the government to do more to get people back to work, and to increase universal credit to support households.

Female workers are likely to be worst hit by the retail collapse, as they make up a majority of roles in the sector.

Former chairman Sir Ian Cheshire is hopeful that some jobs will be saved, as its website and its more profitable stores could find buyers.

Here’s our news story on the decision to start liquidating Debenhams.

Goodnight. GW

Updated

Debenhams collapse: What now for department stores?

Adrian Palmer, professor of marketing at Henley Business School, says Debenham’s collapse highlights that department stores are now being supplanted by new formats - such as ‘pop-up’ retailers as well as online specialists.

“The collapse of Arcadia and Debenhams has been long predicted, with causes that pre-date COVID-19. Lack of investment and slow adoption of online sales hit these companies hard, at a time when online sales now account for 26.1% of all UK retail sales.

But a long-term trend affecting them has been the gradual demise of department stores. They have lost out to niche retailers who focus on selling a limited product portfolio, doing so more efficiently and with greater depth of selection than general-purpose department stores.

The curation role of a department store has been declining, as buyers gain confidence in exploring new specialist retail brands, and find online means of identifying collections of products that meet their needs.

Andy Brian, head of retail at law firm Gordons, suggests department stores can still have a future as a ‘house of brands’, but as part of a wider digital strategy:

“The Arcadia administration has put the brakes on JD Sports’ proposed rescue deal for Debenhams and it looks like time may finally be running out.

Whilst the traditional department store offering may well be a thing of the past, there should be a bright future for a holistic ‘house of brands’ retail proposition, the principle purpose of which is to showcase products and to provide a bit of theatre and an afternoon out for shoppers, as part of a wider digital strategy.

“The problem for Debenhams is that building that model from the ground up is probably an easier strategy to execute than starting with an outdated legacy retailer with a transactional website tagged on the side.”

Chris Hunt, head of retail at law firm Gowling WLG, argues that Debenhams lacked the ‘brand resonance’ needed to survive this year’s retail crisis.

Despite the sensitive ongoing issues, this outcome is symbolic of the current unforgiving retail climate brought on by the pandemic despite any uptake in online performance during lockdown.

A lack of brand resonance has played a key part here, as the enduring customer loyalty that has sustained many throughout the industry becomes even more discerning and selective.

Updated

FTSE 100 posts best day in three weeks

In the City, the FTSE 100 index of blue-chip shares has posted its biggest daily jump in over three weeks.

Optimism over the global economic recovery, vaccine rollouts, and a touch of Brexit deal hopes all drove shares higher - despite the gloom in Britain’s retail sector.

The FTSE 100 gained 118 points, or 1.9%, to close at 6384 -- more than recovering yesterday’s losses. That’s its best performance since Monday 9th November, when Pfizer’s vaccine trial results sent global stock markets racing higher.

UK housebuilders and banks - two sectors vulnerable to an economic downturn or a no-deal Brexit - led the rally, with Taylor Wimpey jumping 7.8%, Lloyds Banking Group up 7.4% and Persimmon gaining 6.9%.

Other European markets posted gains, with the Stoxx 600 up 0.65%. Strong factory data from China also lifted stocks on Wall Street, where the S&P 500 and the Nasdaq are on track for record closes again.

David Madden, analyst at CMC Markets, explains:

Hopes continues to circulate in regards to vaccines being developed for Covid-19. The OECD now predicts that global GDP will contract by 4.2% this year, which is an improvement on the previous forecast of -4.5%. At the same time, it lowered its 2021 forecast to 4.2% from 5%.

The bullish sentiment is seen across the board as hospitality, transport, travel and property stocks are higher too. House builders like Persimmon, Taylor Wimpey and Redrow have been helped by the wider bullish mood and the Nationwide report that house prices increased by 6.5% on an annual basis in November.

Heads-up: Sky’s Adam Parsons tweets that the Brexit trade talks might not have moved into the tunnel after all!

The pound’s still hovering over the $1.34 mark for the first time in three months, though, suggesting optimism of a deal hasn’t faded.

Here’s Reuters’ take on the pound’s jump:

Sterling jumped to as high as $1.3442 on Tuesday after Times Radio said that Brexit trade deal talks have entered the “tunnel” stage of negotiations.

The pound surged to hit a three-month high of $1.3442 at 1610 GMT, gaining half a percent in around 5 minutes.

“Tunnel was the key word that pushed the pound higher,” said Neil Jones, head of FX sales for financial institutions at Mizuho. “The market has taken this comment as a deal is very close.”

The “tunnel” is a term for an intense final stage of secretive, make-or-break negotiations.

More here: Sterling jumps on report Brexit negotiations have entered “tunnel” stage

Pound jumps on 'Brexit tunnel' report

Sterling has hit a three-month high against the US dollar this evening, after a report that the UK-EU trade deal talks have entered the ‘tunnel’ stage of intensive negotiations.

The pound surged after Tom Newton Dunn, Chief Political Commentator on Times Radio tweeted that “UK-EU trade deal talks have, at long last, entered the mythical tunnel”.

Newton Dunn added that there are “hopes (on both sides)” of a deal by the end of this week, but also cautioned that it could “still yet all fall apart”.

This sent the pound up by a cent to $1.344 against the dollar, the highest point since early September, although it’s dipped back slightly since.

My colleague Peter Walker explained how the tunnel works last year:

This is a Brussels-coined term for intensified Brexit negotiations intended to take place between small teams from the UK and EU, insulated as far as possible from the pressures of leaks and media scrutiny.

The talks involve only senior negotiators, with no documents, media briefings, or anything else that could be used to derail the process.

Updated

Debenham’s former chairman, Sir Ian Cheshire, is hopeful that some jobs will be saved at the stricken department store chain.

Cheshire told Sky News this morning that it was a “sad day” for Debenhams, particularly for its staff in the run-up to Christmas.

He expects stores would trade through the Christmas season, adding:

“The whole challenge of Debenhams has been, from the time I was there, is there’s a fantastic business inside it - probably 70 stores and a very good website which I’m sure someone will be buying, so I don’t think all these jobs are going....

Cheshire predicts that some of Debenhams profitable stores could be split up between different buyers. Its website, and some of its own label brands -- the Designers at Debenhams concept -- are “interesting assets”, and will carry on in some forms, but be digitally led, he added.

Earlier in parliament, Chancellor Rishi Sunak said the Government “stands ready” to help workers affected by job losses at Arcadia and Debenhams.

Press Association has the details:

Speaking in the Commons, Mr Sunak said: “The news about Arcadia, and indeed Debenhams, is deeply worrying for employees and their families and the Government stands ready to support them.

“With regard to various things that are ongoing, there are negotiations between various parties and the companies at the moment - particularly with regard to pensions - and it wouldn’t be right for me to comment specifically on those.

Responding to a question from Labour MP Ruth Jones, Mr Sunak said she could “be rest assured we keep an eye on the situation.”

OECD: UK to suffer badly from Covid-19 pandemic

The OECD’s latest economic outlook makes tough reading for the UK - showing that Britain’s economy will be among the hardest hit by the pandemic.

The Paris-based thinktank expects the UK economy to shrink by 11.2% this year, and only grow by 4.2% in 2021 and 4.1% in 2022.

That’s much weaker than the global average. The OECD predicts the world economy will shrink by 4.2% in 2020, then by 4.2% next year and 3.7% in 2021.

The eurozone is expected to shrink by 7.5% this year, followed by 3.6% growth in 2021, while the US is on track for a 3.7% contraction then a 3.2% recovery.

A strong recovery in China should GDP back to pre-crisis levels by the end of 2021, it forecasts.

But as this chart shows, Britain is far behind - with Argentina the only G20 nation expected to perform worse.

The OECD predicts the UK will suffer weak business investment, increased border costs once the Brexit transition ends, and a rise in unemployment and bankruptcies - although the furlough scheme and Covid-19 crisis loans will cushion the blows.

In its report, it says the UK’s ‘initially strong rebound’ in the July-September quarter is set to go into reverse this quarter, after Covid-19 cases rose again.

It also warns that growth could be even weaker if the health situation worsens further, saying:

A deterioration could prompt additional restrictions on economic activity and lead to a slower recovery.”

The forecasts underline that Britain is set to suffer more economic pain from the pandemic than most other nations, as well as running up a record deficit and suffering over 58,000 deaths (within 28 days of positive test)

As the FT’s Chris Giles puts it:

Towards the end of next year, Britain’s economy would still be 6.4 per cent smaller than it was in the fourth quarter of 2019, the OECD predicted. This was better than Argentina’s projected loss of 7.9 per cent, but lower than all other leading economies.

China’s economy was on course to be 9.7 per cent larger than it was at the end of 2019, with gains also seen in South Korea and Indonesia. The US was set to have lost only 0.1 per cent and the eurozone 3 per cent.

The UK’s problem, the OECD said, was allowing the virus to spread extensively in the first and second wave along with very extensive lockdowns to control the extent of the disease. The economic shock was “particularly sudden”, the organisation said.

FT: UK economic recovery from Covid crisis forecast to be among world’s slowest

Overall, the OECD says the outlook for the global economy is improving, but the crisis isn’t over.

OECD chief economist Laurence Boone cautions:

“We’re not out of the woods. We’re still in the midst of a pandemic crisis, which means that policy still has a lot to do.

And for that reason, the OECD is also urging governments not to risk choking the recovery by cutting spending too soon. More here:

Updated

The collapse of Debenhams will leave vacant spaces on the high street that will “impossible to fill” in a like-for-like way, warns Dr Gordon Fletcher of University of Salford Business School.

Today’s announcement reconfirms what has long been known. The UK high street is increasingly a fragile house of cards that suffers from a concentration of ownership, insufficient investment to keep pace with online developments and a general lack of dynamism and engagement between brands and consumers.

“This decision affects the 200 year old chain’s 124 outlets and 12,000 employees across the country. It is a closure of the chain that mirrors the complete failure of Woolworths over ten years ago.

The parallels are important too. As a department store retailer the spaces that will be left on the high street are large and will be impossible to fill like for like.

Updated

UK factories are holding up better than the retailers.....thanks to Brexit stockpiling.

New figures this morning showed that output growth, and new business orders, both accelerated last month, helping to slow (but not stop) the downturn in employment.

Data firm Markit, which compiles the monthly PMI report, explains:

The upcoming end to the Brexit transition period meanwhile led to rising levels of input purchasing, stockpiling of raw materials and stronger gains in new export business as EU-based clients brought forward orders.

But the consumer goods sector had a poorer November, with back-to-back decreases in both production and new business.

Duncan Brock of the Chartered Institute of Procurement & Supply says manufacturers were running at full pelt to meet Brexit stockpiling demands, but 2021 could bring disruption:

Job shedding continued last month and new business could drop off a cliff in January as potential border disruptions are thrown into the mix.

The prospect of an extended recession continues to hover above the UK economy until clarity around a Brexit deal is reached and hopes for an effective vaccine supply chain are realised bringing much-needed normality.”

Consumer journalist Harry Wallop makes a good point - people haven’t stopped shopping, but they’re shopping less on the high street.

The latest ONS figures show that UK retail sales have risen for six months in row (up to October). But since February, before the first lockdown, online sales had increased by 52% while bricks and mortar shops had suffered a 3.3% fall.

Chloe Collins, senior retail analyst at GlobalData Retail, shows how Debenhams fortunes have waned in recent years:

Pippa Stephens, retail analyst at GlobalData, fears there’s little chance that Debenhams’ administrators will receive a late offer to prevent the business closing down.

She says:

Arcadia’s brands have an opportunity to survive if broken up but after operating in its second round of administration for some time, Debenhams’ hopes of living on are slim.

This will create even more empty units in UK shopping centres, and boarded up shops on the high street, with a knock-on impact on landlords.

Rival retailers could cherry pick some sites, though, she adds:

Mike Ashley’s Frasers Group may be interested in taking some stores. However, with the group having a history of pushing rent reductions and delaying payments, this could add unwelcome pressure for landlords.

Although JD Sports has pulled out of its rescue bid for Debenhams, it may also now decide to take on some of these units in order to expand its presence on the high street, while the spaces could also be desirable for Next, since the retailer has already opened beauty halls in some of the former Debenhams sites

More Debenhams history here:

If Debenhams can’t be saved, then it will be a sad end to a retail story dating back 242 years.

The company traces its history back to 1778, and a drapers store opened at 44 Wigmore Street by one William Clark.

Clark sold “expensive fabrics, bonnets, gloves and parasols” to West End shoppers. Thirty five years later, William Debenham invested in the firm which then became Clark & Debenham

Debenhams’ potted history explains that the firm did well from Victorian mourning dress:

The first store outside London was opened in Cheltenham in 1818, an exact replica of the Wigmore Street store. In the ensuing years the firm prospered from the Victorian fashion for family mourning by which widows and other female relatives adhered to a strict code of clothing and etiquette.

A flurry of acquisitions followed. The Debenham family stayed involved until the 1920s, when it became a listed company -- by 1950, it says it had become the UK’s largest department store group.

By 1950, Debenhams was the largest department store group in the UK, owning 84 companies and 110 stores. It continued to grow and in 1966 central buying was introduced for the first time.

Seventy years later, it faces being liquidated and broken up in the new year, a very sad end for its 12,000 staff, and a blow to its suppliers and the wider economy too.

Update: Interestingly, in 1985 Debenhams became part of Burton Group, which morphed into Arcadia (subsequently acquired by Philip Green) after Debenhams was demerged in 1998. UK retail can feel like an episode of Rock Family Trees sometimes...

Updated

Retail crisis will hit women especially badly

The UK retail crisis is particularly painful for female workers, as they make up roughly three in five jobs in the sector.

Even before the pandemic, there were signs that the wave of store closures and job losses was having a disproportionate impact on women. The Royal Society of the Arts reported last year that 70% of the retail jobs lost to automation and ecommerce were among female employees.

The collapse of Arcadia and now Debenhams will exacerbate this problem, warns Joe Levenson, director of communications and campaigns at Young Women’s Trust:

Young women on low pay were already struggling to get by before the coronavirus crisis hit and since then many have already suffered a loss of earnings due to redundancy, furlough or juggling precarious and insecure work with caring responsibilities.

The announcement that Debenhams stores are set to close with up to 12,000 job losses is likely to hit women especially hard, as the majority of retail jobs are done by women.

If the Government is serious about protecting the most vulnerable, the needs of young women must be at the heart, Levenson adds:

This means doing much more to protect jobs in sectors many young women work in including hospitality and retail, investing in the benefits system to better support young women, a jobs and training plan which has the needs of young women at its heart and ensuring investment in social infrastructure such as childcare.

Anything else risks turning the clock back on sex equality, leaving a generation of young women facing even greater struggles.

TUC General Secretary Frances O’Grady says the crisis on UK high streets underlines the need for ‘urgent, targeted’ action to support sectors such as retail:

“The government must not watch from the side lines as thousands of high street jobs are lost.

“We need urgent and targeted action to save livelihoods in badly-hit industries - like retail- before it’s too late.

“Unions stand ready to work with ministers and employers on sector-by-sector recovery plans.”

O’Grady also urges the government to provide more financial aid to struggling families through universal credit.

“There is a very stressful time for retail workers.

“The government must do all it can to help those who lose their jobs get back on their feet.

“That means investing in creating decent jobs across the country and boosting universal credit.”

Currently, the temporary £20-per-week increase in UC is due to end in April 2021, which would mean a £1,000 annual cut in benefits - unless the government acts first. There was no decision in last week’s Spending Review.

The Resolution Foundation says failing to extend the increase would hurt 6 million households next year, just when unemployment is expected to be peaking.

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:

Private equity groups Texas Pacific, CVC Capital Partners and Merrill Lynch Global - who owned Debenhams together with the management team led by John Lovering and Rob Templeman - retain a 43% stake in the business after the float. They sold 487m shares, nearly 57% of the group, and raised £950m. Some £250m is to be shared among the owners, and the rest will be used to reduce debts.

Some analysts had suggested investors might shun the float, on the grounds that management has squeezed every possible penny out of the business by actions such as selling its freehold property and extending payment dates to suppliers.

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.

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.

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.

As Richard Lim, chief executive at Retail Economics, puts it today:

“The reality is that Debenhams has been outmanoeuvred by more nimble competitors, failed to embrace change and was left with a tiring proposition.

The impact of the pandemic has accelerated its demise but underlying issues within the business were the root cause.”

Arcadia’s collapse last night pushed Debenhams closer to the brink, explains Julie Palmer, partner at Begbies Traynor, the corporate restructuring firm.

“Coming so swiftly on the back of Arcadia’s collapse, today’s news represents a real bleak moment for the High Street.

Given how prominently Arcadia brands feature in its stores, the downfall of Sir Philip Green’s empire was always likely to leave Debenham’s rescue deal hanging by a thread. The pandemic has had a hugely corrosive effect on traditional retailers but especially for those with a significant physical presence on the High Street, which has largely been a consumer no-go zone for the majority of the year.”

JD Sports then delivered the final blow by abandoning rescue talks this morning.

“There will be myriad reasons behind JD Sports’ decision, but it is likely to have been particularly spooked by the inability to predict the future course of Covid restrictions, which could further limit footfall. Whatever their rationale, it’s clear the UK High Street is never going to look the same again.

ITV’s Joel Hills also reckons there were several reasons why JD Sports got cold feet:

Full story: 12,000 jobs on the line at Debenhams

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:

Debenhams is set to wind down the business and close all 124 stores after JD Sports ended discussions over a rescue deal for the struggling department store chain.

Administrators to Debenhams, which has been seeking a buyer since the summer, said the sale process had “not resulted in a deliverable proposal”. This means all 12,000 employees are likely to lose their jobs.

They will continue to seek a buyer while stores will remain open to sell off remaining stock. If no buyer is found once that stock is sold, the stores will close.

Talks with JD ended after Debenhams’ major supplier Arcadia collapsed into administration on Monday, and it is understood that the uncertain future of the group, which owns Topshop and Burton, played a big part in the decision.

JD confirmed the decision on Tuesday morning in a statement which said “discussions with the administrators of Debenhams regarding a potential acquisition of the UK business have now been terminated.”.

Labour: Devastating news for Debenhams staff

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:

This is devastating news for the 12,000 employees at Debenhams who are facing a very worrying Christmas, and comes on top of the news that Arcadia has gone into administration.

“The Government must urgently set out how it plans to support the people affected by the collapse of these companies, including pressing Philip Green to do the right thing and plug the Arcadia pension deficit.”

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.

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”.

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.

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:

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:

British department store retailer Debenhams is to start a liquidation process that will see its stores close and the potential loss of 12,000 jobs, dealing another hammer blow to the country’s retail sector during the COVID-19 pandemic.

Debenhams administrators FRP Advisory said on Tuesday the decision to wind-down Debenhams followed its failure to find a buyer.

JD Sports Fashion confirmed on Tuesday it would not make an offer for the group.

The collapse of Debenhams, which trades from 124 UK stores, comes a day after Philip Green’s Arcadia fashion group entered administration, threatening about 13,000 jobs

Updated

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.

“All reasonable steps were taken to complete a transaction that would secure the future of Debenhams. However, the economic landscape is extremely challenging and, coupled with the uncertainty facing the UK retail industry, a viable deal could not be reached. The decision to move forward with a closure programme has been carefully assessed and, while we remain hopeful that alternative proposals for the business may yet be received, we deeply regret that circumstances force us to commence this course of action.

“We are very grateful for the efforts of the management team and staff who have worked so hard throughout the most difficult of circumstances to keep the business trading. We would also like to thank the landlords, suppliers and partners who have continued to work with Debenhams through this turbulent period and can reassure them that all contractual obligations entered into in the administration period will be met in full.”

Debenhams to be wound down after rescue talks collapse

Newsflash: Debenhams administrators have decided to “wind down” the business, after JD Sports walked away from takeover talks.

The company’s administrators have announced that they will start the process of winding down Debenhams UK, which runs 124 stores, while still looking for offers for all or parts of the business.

Debenhams will keep trading on the high street and online while it clears its current and contracted stocks.

Once that is done, unless a buyer has been found, the UK operation will close -- threatening 12,000 jobs, on top of the 13,000 at risk at Arcadia.

The administrators say:

Given the current trading environment and the likely prolonged effects of the COVID-19 pandemic, the outlook for a restructured operation is highly uncertain. The administrators have therefore regretfully concluded that they should commence a wind-down of Debenhams UK, whilst continuing to seek offers for all or parts of the business.

Debenhams will continue to trade through its 124 UK stores and online to clear its current and contracted stocks. On conclusion of this process, if no alternative offers have been received, the UK operations will close. This does not impact Magasin du Nord in Denmark, which continues to operate independently.

The Financial Times reports that “Debenhams is likely to be liquidated and broken up”, now that JD Sports will not proceed with a bid.

A liquidation would put Debenhams 12,000 workers jobs at risk, just a few weeks before Christmas.

The FT adds:

The news leaves the administrators with few other options, and comes just hours after Arcadia collapsed into administration, putting over 400 stores and 13,000 jobs at risk.

Debenhams has been in a ‘light touch’ administration since April - a new mechanism that lets company directors file for administration but retain day-to-day control of their business too.

The BBC’s Ben Thompson fears that JD Sports’ decision to terminate talks could be the ‘end of the road’ for Debenhams:

The Daily Mirror’s Graham Hiscott has heard that Arcadia’s collapse was the ‘final straw’ -- with JD Sports investors already concerned about the prospect of taking over Debenhams.

Caxton FX analyst Michael Brown fears the high street is being ‘decimated’ this week:

JD Sports pulls out of rescue talks with Debenhams

Newsflash: JD Sports has just confirmed that it has broken off talks with Debenhams about a possible rescue deal.

The move places the UK department chain’s future in serious doubt, as its administrators have been seeking a buyer for several months.

In a brief statement to the City, JD Sports says:

JD Sports Fashion Plc, the leading retailer of sports, fashion and outdoor brands, confirms that discussions with the administrators of Debenhams regarding a potential acquisition of the UK business have now been terminated.

This puts thousands more jobs at risk across the UK high street, following the collapse of Arcadia (Debenham’s biggest customer) last night.

As my colleague Sarah Butler wrote last night:

Debenhams, which employs about 12,000 people, has been considering a potential sale since the summer after it went into administration in April for the second time in a year.

JD is thought to have been mainly interested in the Debenhams website but analysts said it was hoped it could take on almost half the group’s 124 outlets. The group saw a chance to move into a broader market and sell homewares, beauty products and smarter clothing to its existing customers.

If JD does pull out of rescue talks, the only remaining suitor likely to take on a significant number of stores is Mike Ashley’s Frasers Group.

Updated

In other news... UK house prices have risen at the fastest rate in almost six years.

Prices have jumped 6.5% in the last year, Nationwide reports, with properties in national parks attracting a higher premium as some people look to escape the city...

Michael Gove has also refused to say whether Philip Green should use his fortune to repair the deficit in Arcadia’s pension scheme.

He told BBC Breakfast that there are “people better placed than me” to judge the right thing to do, “in order to do right by all those who work for Arcadia”.

Sir Ian Cheshire, former chairman of Debenhams, told the BBC this morning that Debenhams and Arcadia have both been ‘caught in a straitjacket’.

Asked about fears that JD Sports will abandon its rescue of Debenhams today, threatening 12,000 workers’ future, Cheshire says:

I feel desperately sorry for the thousands of people now worried about their jobs going into the Christmas period.

The human cost of this is the main issue I see.

But he says it’s not a surprise that Arcadia’s collapse would hurt Debenhams, as they’re “both each other’s biggest customers”.

And they both faced the same problem:

How fast can you change when you are stuck with long leases and fixed costs, when the internet, athleisure and a degree of value players who have emerged means you have to evolve so much faster?

Cheshire, a retail veteran, also predicts that Arcadia’s brands will attract interest from other retailers.

There will be a series of players interested in these brands because you have some fantastic, well-established brands inside there, caught in the wrong cost structure.

Gove: Management missteps contributed to 'tragic' collapse of Arcadia

Michael Gove, Minister for the Cabinet Office, has pointed out that ‘missteps’ by Arcadia’s management contributed to its collapse.

Speaking on Sky News this morning, Gove said Arcadia’s story was tragic:

“The Arcadia story is a tragic one and I’m not going to criticise any individual but there’s been a lot of reporting that points out some of the missteps that have been made by the management there.

However, Gove also blamed the unprecedented pressures on the UK high street under the pandemic, and didn’t identify which management he had in mind.

Q: Why does the government feel Sir Philip Green has mismanaged Arcadia?

There’s a broader question about the management of Arcadia....but I’m not going to get into the personalities of it.

I think most analysts would say there have been some missteps along the way.

Introduction: Arcadia collapse puts 13,000 jobs at risk

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Thousands of Arcadia staff have woken up to an uncertain future after Sir Philip Green’s retail empire fell into administration last night.

The group behind high street names like Topshop, Miss Selfridge, Burton and Evans became the biggest retail casualty since the pandemic began.

Deloitte are now in control of the company, whose problems - from a lack of investment to a failure to adapt to the online shopping world - predate Covid-19.

Deloitte plan to keep stores running while they look for “one or more buyers”, which means branches in England should reopen tomorrow when the lockdown ends. It also suggests the group could be broken up, with some of its brands acquired by rivals.

So for 13,000 staff, it’s an extremely worrying turn of events in the run-up to Christmas.

Usdaw, the retail trade union, says it is seeking urgent meetings with Arcadia’s administrators in a bid to preserve jobs.

Dave Gill, Usdaw national officer, said:

“Now that Arcadia is in administration, it is crucial that the voice of staff is heard over the future of the business and that is best done through their trade union.

“We are seeking urgent meetings and need assurances on what efforts are being made to save jobs, the plan for stores to continue trading and the funding of the pension scheme.

“In the meantime, we are providing our members with the support and advice they need at this very difficult time.”

Arcadia’s collapse also raises fears that staff could lose a slice of their pensions, given there is a deficit of perhaps £350m in its pension scheme.

Pressure is on Sir Philip Green to clear the shortfall.

As my colleague Nils Pratley writes:

“Staff just want to know if, and how, Green plans to fill the deficit in Arcadia’s pension schemes.

The main reason why a deficit in the pension fund has persisted over years is that the Greens extracted their famous £1.2bn dividend from Arcadia in 2005 which weakened its balance sheet and undermined its ability to make catch-up pension contributions in leaner trading years.”

Arcadia’s collapse could also have a very damaging impact on the wider UK retail space, with analysts estimating it could owe its suppliers up to £250m.

It also threatens to derail JD Sports’ rescue bid for Debenhams, as some Arcadia brands, such as Miss Selfridge and Dorothy Perkins, are sold at concessions within Debenhams stores, providing an estimated £75m of sales.

The agenda

  • 9am GMT: Eurozone manufacturing PMI for November
  • 9.30am GMT: UK manufacturing PMI for November
  • 10am GMT: Eurozone inflation for November
  • 1.30pm GMT: Canadian GDP for Q3 2020
  • 2.45pm GMT: US manufacturing PMI for November
 

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