The UK high street took another hit this week as Debenhams entered a pre-pack administration and its lenders took control.
Following a rejection from Debenhams board and lenders of two offers from Sports Direct because of the conditions attached, the public limited company entered a pre-pack administration on Tuesday.
Debenhams insisted that this option would “ensure the stability and continuing trading of the group’s operating subsidiaries, with no disruption to the group’s business, customers, employees, pension holders, suppliers or operations”.
The downfall of Debenhams is not unexpected – it has long been in slow decline. Although the pre-pack administration will give the retailer access to the remaining £99m of a £200m emergency fund, it is unlikely to immediately ease the worries of employees and suppliers, as the future still looks uncertain to many.
Alongside its debt, Debenhams is facing many challenges.
The department store has failed to keep up with its customer and invest in the technology required to meet shoppers’ expectations in today’s market.
It no longer offers a point of product differentiation. Once a pioneer – leading the way in terms of collaborations, for example, with the launch of Designers at Debenhams in 1993 – it has since been overtaken in this area by more reactive and innovative retailers such as H&M.
The onsolidation of its store estate was left too late, as was the integration of its online and offline channels.
Debenhams has long been a victim of the discounting trap – something that was highlighted way back in 2007 by Investec analyst Mark Charnock when he said to Drapers: “To roll Debenhams back to where it should be before it started going heavy on promotions would take a long time, but there’s no indication that it plans to go back.” Today, discounting is still very much part of the Debenhams strategy.
Now in control, lenders must face these challenges and strategically use the emergency funding to secure Debenhams’ future. A company voluntary arangement now looks likely, and would result in the closure of at least 50 stores, but much more needs to be done. The department store group must find its place in today’s market to survive through the next chapter and ensure its current downfall does not signal its demise.