Talk of massive job losses linked to Debenhams rescue deal
today Jan 14, 2019
On the day that New Look said it had solved its debt problems with a deal to hand control of the business to its creditors, news also came about Debenhams’ ongoing efforts to secure its future.
But while the New Look deal was officially announced, Debenhams hasn't release any specific news yet and the story about it came via sources quoted in the Telegraph.
The newspaper said that “a daring rescue attempt being drawn up to save Debenhams from going bust” could mean more than 10,000 job losses. If that happened, it would be the biggest single loss of retail jobs since the 2016 collapse of BHS, which saw 11,000 jobs axed.
It also said it “understands that the chain has earmarked as many as 90 of its high street stores for closure.” That would mean more than half of its total store estate being shuttered.
Debenhams has 165 UK and Irish shops and it employs 26,000 people. It has already talked about closing around 50 stores, and this latest report suggested that another 30 or 40 could be cut in order to focus ruthlessly on the most profitable locations.
Despite the pain in terms of job losses, that would make good business sense as almost 90% of pre-tax profits for the company come from between 80 and 90 of its most successful shops.
Of course, we also have to take into account the Mike Ashley factor. The retail tycoon currently controls nearly 30% of Debenhams shares through the Sports Direct business in which he’s the majority shareholder.
Ashley also controls House of Fraser and cancelled that company’s plan to close more than half of its own stores after he bought it out of administration last year. Forcing the resignation of Debenhams’ chairman Sir Ian Cheshire and ousting the retailer’s CEO from the board last week, he showed that his opinion counts and he’s prepared to flex his muscles when it comes to strategic decision-making at Debenhams.
Whether his involvement will be a good thing or not for the embattled retailer is open to question. The Telegraph reported City insiders doubting its long-term survival prospects.
The CEO, Sergio Bucher, who remains in charge despite his removal from the board is expected to unveil a three-stage turnaround proposal with lenders in the next few weeks. And just as with New Look, a partial debt-for-equity swap is expected to be part of the plan, alongside a fundraising element.
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