Bleak Christmas for Debenhams and Arcadia
This December 1st however, in this already incredible year, will be remembered for the owners of some of the biggest names in UK retail going into administration overnight and the imminent closure of another.
Debenhams have announced that they intend to wind down the business and close all of their remaining 124 stores.
The company was already in administration and had been seeking a buyer for the group since the Summer but the sale process had “not resulted in a deliverable proposal” and after the last credible bidder, JD Sports, announced they were ending discussion over a deal, the result was inevitable.
Stores will remain open to sell off any remaining stock but if no buyer is found once all the stock is sold then the stores will close and the 12,000 remaining employees will lose their jobs.
The brand and online elements may be salvageable, but in reality little else.
The administrator said: “All reasonable steps were taken to complete a transaction that would secure the future of Debenhams. However the economic landscape is extremely challenging and, coupled with the uncertainty facing the UK retail industry, a viable deal could not be reached.
“The decision to move forward with a closure programme has been carefully assessed and, while we remain hopeful that alternative proposals for the business may yet be received, we deeply regret that circumstances force us to commence this course of action.”
The Arcadia group also went into administration last night.
13,000 employees continue to work for the Topshop, Topman, Dorothy Perkins, Miss Selfridge, Wallis, Burton and Outfit brands that make up the group’s high street presence but will obviously be worried about their future prospects.
They currently remain open and continue to trade while administrators look to find buyers for all or more likely, parts of the group.
Chief Executive Ian Grabiner said: “This is an incredibly sad day for all of our colleagues as well as our suppliers and our many other stakeholders.
“The impact of the Covid-19 pandemic, including the forced closure of our stores for prolonged periods, has severely impacted on trading across all of our brands.
“Throughout this immensely challenging time, our priority has been to protect jobs and preserve the financial stability of the group in the hope that we could ride out the pandemic and come out fighting on the other side. Ultimately, however, in the face of the most difficult trading conditions we have ever experienced, the obstacles we encountered were far too severe”.
Arcadia had already entered into seven CVAs with creditors, one for each brand, in 2019 to help offset its debt burden and reduce rents. The idea was then to free up funds to massively up its digital game, which is a sensible course of action for any retailer.
The emergence of Covid-19 and lockdown meant that strong digital market leaders such a Boohoo and Asos were able to build on their existing advantage and pull away.
Any digital investment and innovation from Arcadia would have been too little, too late with too much ground to make up too quickly against agile and innovative competitors.
With more time and investment (and no pandemic), Arcadia might have been able to turn their ship around but ultimately ran out of both.
Arcadia’s decision to enter administration when they did is also a blow to HMRC as a change in insolvency law comes into force today.
Crown Preference is now back on the statute books and means that HMRC are a preferential creditor in liquidations. This means that they have a higher priority for payment over other, unsecured creditors.
By going into administration hours before the rules changed, HMRC will possibly miss out on millions of pounds which could now go to other creditors instead.
Sir Ian Cheshire, former chairman of Debenhams, pointed out a key component of the story – that Debenhams and Arcadia were each other’s biggest customers. The collapse of one was going to have a material negative impact on the other and both’s chances of survival.
Miss Selfridge and Dorothy Perkins were amongst the most prominent concession operations running within Debenhams and generated approx. £75 million in sales last year.
This is a sizable hole for any retailer to fill even in boom times.
Sir Ian surmised the existential challenges facing both groups: “How fast can you change when you are stuck with long leases and fixed costs, when the internet, athleisure and a degree of value players who have emerged means you have to evolve so much faster?”
The demise of Debenhams could ironically mean it’s even harder for Arcadia to find buyers in the short term as suddenly there’s a huge closing-down sale beginning on their very doorsteps.
2020 has made everybody question their assumptions and beliefs.
What is permanent and solid today is the answer to a trivia question tomorrow. Having a history and a strategy for future growth are important but are either as important as what’s happening now?
Making a decision today might make all the difference down the road. Not taking a choice now might close off a future route to recovery and seal the fate of a business.
The only thing that is really under anybody’s control is their own reasoned choice – how they choose to react to any situation or set of circumstances.
And while we appreciate and encourage decisive action, we always think it’s better to get an opinion on that action first.
We’re available right now to arrange a free consultation about how you can protect and help your business get through this fraught festive period.
Because if 2020 should have taught us all one lesson – it’s that if it can happen to Arcadia and Debenhams, it can happen to anyone.