Several Debenhams suppliers have warned the retailer’s proposal to close 22 of its stores will have “significant implications” for them as they rely on the department store for volume orders.
Debenhams proposed a company voluntary arrangement (CVA) on Friday, after it entered into a pre-pack administration deal on 9 April.
If the CVA is approved by landlords, it would result in 22 Debenhams store closures in early 2020. The retailer intends to close 50 shops in total in the longer term.
“Closing stores will have a big impact on suppliers because we will have to decrease our volumes,” one supplier said. “Suppliers need Debenhams to sell their goods. It’s always painful when people go through CVAs – you just have to plan for that possibility. I just hope suppliers don’t get taken down in the process.”
A source close to the situation agreed: “The CVA is a saviour for some people, but for suppliers it’s not. A lot of companies rely on supplying the department store.
“As Debenhams stores close, suppliers will try and look to supply elsewhere, but there aren’t many big retailers or department stores left to supply to.”
Debenhams said its suppliers would be “paid in full” throughout the CVA process: “The CVA does not seek to compromise claims of any creditors other than certain landlords, local authorities and inter-company liabilities. All trade suppliers and the entitlements of employees will continue to be paid in full during this process.”
A letter sent to suppliers from Debenhams, seen by Drapers, said: “We are confident that a CVA is the best way to secure a sustainable long-term future for the business and provides the best outcome for suppliers, enabling us to continue with our strong trading relationship. We strongly encourage you to support the CVA by casting your vote in favour of the proposal.”
Despite reassurances from the department store, suppliers are still worried they will lose out.
“Debenhams has said that all suppliers will continue to be paid in full during the process, but the big issue for me is that it will need legal clarification”, one Debenhams supplier said.
“If the CVA is just on leases then it could be possible [that suppliers will be paid in full], but if not, then the supply base will be hammered, and suppliers will lose their money.
“The concern is how the suppliers will actually be protected and for how long.”
Debenhams declined to comment.