Yahoo Finance Job loss fears reignited as analysts warn Debenhams closures 'inevitable'
At least 50 Debenhams stores are likely to close across the UK despite reassurances from the retailer on Tuesday, analysts warn.
Debenhams fell into administration on Tuesday, but the bulk of the business was immediately sold to a consortium of its lenders, which include banks and hedge funds. A more long-term buyer is now being sought as part of efforts for lenders to recoup over £250m that has been lent to Debenhams.
Debenhams said on Tuesday the deal “delivers continuity for all Group operations and was in the best interests of the Group’s creditors, employees, customers, pension holders, and suppliers.”
However, Clive Black, a respected retail analyst at stockbroker Shore Capital, and his colleague Greg Lawless warned in a note on Tuesday that “store closures [are] inevitable.”
“Back in Autumn 2018 the management team announced a restructuring programme which would see up to 50 stores close over a three to five-year period,” the pair wrote.
“In our view, under new owners this restructuring plan may well be accelerated, together with a renegotiation of property leases with landlords.”
Other analysts echoed Black and Lawless’ view.
“We can still expect Debenhams to continue trading, though store closures are inevitable as Debenhams cuts its cloth to fit today’s increasingly digital retail environment,” Laith Khalaf, a senior analyst at stockbroker Hargreaves Lansdown, said.
“It is hard to see a long-term future for employees unless a takeover can be agreed upon with lenders likely to take any legal means to recoup as much of the debt as possible,” David Cheetham, chief market analyst at trading platform XTB, said.
The store closure warnings will reignite fears around job losses at the department store, despite reassurance from Debenhams that Tuesday’s deal would leave stores and staff unaffected. Debenhams employs around 30,000 people and has 166 department stores across the UK.
Sports Direct also highlighted the risk of job losses at Debenhams in a statement Tuesday afternoon. “Now the future of thousands of Debenhams employees, shareholders, pensioners, landlords, and suppliers lie in the hands of the Lenders, including off-shore-based hedge funds. This is nothing short of a national scandal,” the rival retailer said.
The quick sale to Debenhams’ lenders — known as a pre-pack administration — came after Sports Direct founder Mike Ashley battled for weeks to take control of the company. Ashley, a billionaire who owned 30% of Debenhams, had offered to help refinance the company’s debt in exchange for being appointed CEO.
Sports Direct said the pre-pack administration was a “true tragedy” and “marks the end of this sorry chapter in Debenhams’ history.”
“Recent events — which have culminated in this disastrous outcome — were totally avoidable and represent the complete destruction of shareholder value,” the company said.
“Whilst these hedge funds look to close a significant number of stores and put thousands of people out of work, as politicians and regulators look on, I will go to the ends of the Earth to save as many Debenhams stores and jobs as I can, similar to the promise I made with regards to House of Fraser,” Ashley said.
“While there may be some short term cost to Sports Direct and our shareholders, sometimes you have to do the right thing, something the board of Debenhams and the hedge funds have manifestly failed to do.”
Ashley criticised politicians and regulators for failing to intervene in the administration process, saying they were “as effective as a chocolate teapot.”
“I restate my call for the advisors to go to prison given their skulduggery in undermining shareholders and other stakeholders, such as employees and pensioners,” he said.
