Some high street suppliers have stopped working with Debenhams over fears of missed payments and following cuts to its credit insurance, Drapers has learned.
It is understood that two London-based suppliers have walked away from Debenhams and another has reduced its exposure after credit insurance for the retailer was reduced by several leading providers, including Atradius, Euler Hermes and Coface.
Earlier this month, credit ratings agency Moody’s downgraded its long-term outlook for Debenhams from B2 to Caa1, and changed the “probability of default” rating – which measures the relative likelihood that a company will default on one or more of its debt obligations – from B2-PD to Caa1-PD.
“They owed us so much money at any one time, we decided it was too risky,” one supplier told Drapers. “It’s not worth it. I know other suppliers are nervous about going forward with Debenhams, [and] we were in the same boat. It could be a disaster for them.”
Another supply source said: “It happened when the insurance got pulled. Everyone is having a bit of realignment because of uncertainty about Debenhams. In the past people would take some risks – it’s a risky industry – but it’s what level of risk you want to take across the board.”
One supplier told Drapers he was being more cautious after suffering a hit from House of Fraser’s administration: “We lost credit cover several months ago and had to stop trading with [Debenhams] in stores, although we’re still online.
“We’re very worried because we were hit by HoF – we lost thousands of pounds there. Debenhams has a good name and, as a supplier, we want to do what we can to help them, but we also have a responsibility towards our staff.”
Another Debenhams supplier agreed: “The credit downgrade is affecting brands like us, as we will not get enough insurance coverage. Debenhams might be OK for the short term, but it is hard to plan growth knowing you are not covered by the insurance, and our bank financing will not back such risky business in the current retail environment.
“It is really worrying following HoF’s administration, as many of us have not overcome those losses yet.”
Drapers understands only half of Debenhams’ suppliers across all departments – including fashion, beauty, gifts, furniture and electricals – use credit insurance.
It is also understood that Debenhams is accelerating its planned consolidation of its supply base.
A spokeswoman for the retailer said: “Many suppliers don’t use credit insurance. Those that have used it historically are well aware of the current situation and work with retailers to manage things accordingly. Debenhams is well stocked for Christmas.”
The struggling department store group announced a £491.5m statutory pre-tax loss for the year to 1 September 2018 – down from a £59m profit the previous year. EBITDA fell by 27.5% to £157.3m and its underlying profit before tax more than halved, dropping 65.1% to £33.2m.
Like-for-like sales were down by 2.3%, and Debenhams described beauty and fashion as “weak” areas.
Gross transaction value for the year also fell, by 1.8% to £2.9bn.