It is never good to see such a large store/company falter and fail, and unfortunately we are seeing this more and more; especially on the High Streets.
For now, Debenhams will “trade as usual”, however it is expected that there could be store closures, which means the loss of jobs.
So how did this come about, a few factors to know:
* The retail chain had over £700 million in debt.
* The retailer looked to its creditors to restructure the debt, but no agreement could be had.
* Mike Ashley who owns Sports Direct and has a nearly 30% stake or ownership of Debenhams, put in a bid of £200 million to buy the stores.
* By rejecting Ashley’s bid, the chain fell into the hands of its creditors, via a Pre-Pack Administration.
* The company has access now to £200 million of new funding from new ownership.
* Prior investors/shareholders such as Mike Asley, whose stake was valued at one point at £150 million, are now left out of pocket, their shares are worthless.
So in one fell swoop, Debenhams is in the hands of those they owe and new hands, and those that had investments in the store are now holding nothing.
Just like that.
The Chairman of Debenhams, Terry Duddy said, “It is disappointing to reach a conclusion that will result in no value for our equity holders. However, this Transaction will allow Debenhams to continue trading as normal; access the funding we need; and proceed with executing our turnaround plans, whilst deleveraging the Group’s balance sheet.”
“We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.”
So why was Debenhams struggling financially?
Changing buying habits of consumers, added to high expenses and such a high debt load, £720 million in debt!
Retail Analyst Tony Shiret stated, “Debenhams is being killed by its rent. Its average rent term is probably 18 or 19 years and they’re paying more than £200m a year of rent plus probably about another £100m of rates, that’s killing them.”
It is thought the restructuring of the company will see closures of 50 of their 166 stores, with job losses estimated to be “around 4,000”.