Debenhams’ proposed CVA is much needed for a chance of survival, says GlobalData

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Following today’s release of Debenhams H1 figures for 2018/19, Sofie Willmott, senior retail analyst at GlobalData, a leading data and analytics company, comments: ‘‘Currently in administration and without a CEO, Debenhams has this morning announced plans to close up to 22 stores in 2020 as part of a CVA, to better implement its redesigned strategy and reshape the business, giving the retailer a greater opportunity to withstand the tough UK trading environment. Although Debenhams has been slow to react to the changing retail landscape as spend shifts online, like many of its competitors such as Marks & Spencer and the Arcadia group, culling branches now will mean it can invest in its remaining portfolio and roll out its new format. UK store sales declined 7.4% in H1 (practically in line with Next’s store performance with sales down 7.9% for the 52 weeks to 26 January 2019), though branches in the Redesigned format outperformed the average by c1.5%.

“With extensive media coverage of its troubles in recent months, Debenhams must start to implement visible positive changes quickly to reassure shoppers that it is bettering the shopping experience and that it is a trustworthy and reliable retailer. Recent improvements to flagship branches such as Oxford Street and Intu Lakeside demonstrate that despite being on a major cost cutting mission, the retailer has been able to enhance the look and feel of locations, adding elements to give more prominence to food and services. However a more enticing store environment alone will not solve all of its problems and Debenhams must revitalise its product offer if it is to win shoppers back. With consumers putting off non-essential purchases, products need to feel like ‘must-haves’ to convince shoppers to buy. Focusing on exclusive brands and collaborations, following in John Lewis’ footsteps, will give Debenhams a point of difference which will help combat the threat of online pureplays such as Amazon and ASOS with their ever-growing product ranges.”

Commenting on the company voluntary arrangement (CVA) proposals announced earlier today by Debenhams, Jim Tucker, a senior restructuring partner at KPMG and proposed supervisor of the CVAs, said: “Today’s announcement marks the next phase of Debenhams’ financial and operational restructuring strategy, following the comprehensive funding package announced at the end of March.  If approved, and with the support of lenders and landlords, the CVAs will allow the business the flexibility to implement its turnaround strategy with a store estate that reflects the current UK retail environment.” 

Debenhams currently trades from 166 stores across the UK via two companies, Debenhams Retail Limited and Debenhams Properties Limited. The CVA proposals divide these stores into five categories as follows: 

  • For a total of 39 stores, the leases will be retained at current rents.
  • 22 stores will have rent reductions of approximately 50% until Q1 2020, after which the stores are expected to close.
  • The balance of the chain will see varying rent reductions ranging from 25% to 50%. 

All compromised leases will have mutual landlord and tenant break clauses during the five year term of the CVA. A further 7 non-retail site leases will also have varying rent reductions and early lease breaks. For the avoidance of doubt, no stores will close on day one, suppliers will continue to be paid on time and in full, and terms of employment are not impacted. The stores in the Republic of Ireland are not impacted, nor is the international business. Debenhams needs to secure at least 75% creditor approval by value for each of the CVAs for them to proceed. Detailed proposal documents will be made available to creditors via a dedicated website today.  The creditors will vote on the CVA on 9 May 2019.  Consultations have already taken place with key creditors and KPMG will spend the coming weeks in further talks with key creditors to ensure they understand the full detail of the proposal.