Coronavirus store closures may have been the final nail in the coffin for Debenhams but retail experts argue the department store chain never recovered from a brutal period in the hands of priv ate equity.
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 £600m investment, collecting £1.2bn in dividends despite owning the company for less than three years.
Debenhams owed around £100m when it was taken private but, by the time it returned to the stock market in 2006, that debt had swollen to more than £1bn. After the retailer’s subsequent poor performance, the deal came to epitomise the worst excesses of the private equity model – the “quick flip” whereby investors buy a listed business cheaply, load it with debt and then refloat it at a big profit.
The private equity consortium installed Rob Templeman, fresh from lucrative private equity revamps of Homebase and Halfords, to overhaul Debenhams. His plan was to cut costs at the same time as increasing sales and profit margins. He also used price cuts to clear products that weren’t selling, but regular discounting was blamed for dragging the brand downmarket.
The consortium had used £1.1bn of debt to acquire the business and Templeman cut borrowing costs by remortgaging some of the stores. In 2005, 23 shops were sold for £495m. Debenhams leased the stores back, on expensive rent deals up to 35 years in length.
Blaming private equity for Debenhams’ demise is “100% justified”, said veteran retail analyst Richard Hyman. “At the very time when the sort of massive changes we’re seeing today were embryonic, Debenhams’ wherewithal to react, ie money, was removed. It was removed into the bank accounts of private equity investors. That is the truth of it.”
In its weakened state Debenhams was unable to generate enough revenue to invest in the chain, while its leadership lacked the necessary vision, Hyman said. “Over the last generation or so, Debenhams has had one great idea: Designers at Debenhams. It had that one idea but it didn’t update them and some of those designers were at the edge of their currency when they were first introduced into the stores.”
