“Retail market will remain tough for Debenhams in spite of store closures”

David Birne, business recovery and insolvency partner at H W Fisher & Company comments: “That Debenhams has announced the closure of as many as 50 stores and losses of £500m suggests it has done a pretty good job of keeping the reality of its dire financial situation from markets.

“Still the circumstances Debenhams found itself in, having issued three profit warnings this year already, made restructuring inevitable. The only question was which route the chain would go down.

“That it has taken the decision to close nearly a third of its current stores rather than take the option of putting in place a Company Voluntary Arrangement (CVA) suggests Debenhams was unable to put forward a CVA that its creditors felt able to agree to. That said rent reductions appear to have been agreed and the strategy announced today could see the chain survive.

“Store closures were almost a given after the department store had its credit downgraded by Moody’s. And suppliers, naturally, had become increasingly nervous about extending too much credit to Debenhams given their own indemnity insurance credit limits were being reduced in response to that downgrade.

“That was bound to squeeze Debenhams’ cash flow, while poor summer trading, rents, business rates and staffing costs were already piling on pressure. Ultimately, by negotiating rent reductions with its landlords Debenhams has pulled off the near impossible. But questions remain about difference, in the short term, that will make to the credit insurers that indemnify Debenhams’ suppliers.

“The closure of 50 stores and the loss of 4,000 jobs is still a significant blow. But, given changing consumer shopping habits, perhaps not that much of a surprise. Debenhams will surely not be the last big retailer to find itself in this situation. Unless it ups its game in terms of online engagement with consumers it may well just be delaying its demise.”