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Will Debenhams' CVA save the retailer?

Debenhams’ long-awaited company voluntary arrangement was approved by a “significant” majority today, but industry insiders have questioned whether the restructuring will be enough to save the struggling retailer.

Debenhams creditors approved the department store’s CVA proposals this afternoon, paving the way for 22 store closures by January 2020. A further 105 stores will get rent reductions and lease negotiations.

Although sources largely agreed that the CVA and store closures were necessary to cut costs many said they were not enough to turn the business around in the longer term.

“The big question is really whether most companies that go through CVAs actually succeed long term,” said one property source. “Is it relevant as a brand and a trading entity regardless of the rent? If it isn’t, then the CVA is not going to save it in the long term. I’m not a fan of CVAs because I think the process is abused. It may give them some assistance to keep trading, but I suspect it’s not the long-term solution.”

Another industry source agreed: “It needed to be done. Overall, it’s a positive for Debenhams but will it solve its position long term? I’m not sure. They’ve got a lot of work to do and are struggling to deal with the changing dynamics of retail.

“They’ve got to do a lot more work to push towards a younger, more fashion-forward clientele who would normally go online – that’s the main thing.”

One supply source said: ”It’s a positive outcome for the short to medium term. I suppose there still has to be question marks over their longer-term viability. If the trend to online continues, they need to increase market share online and revisit the number of stores.”

One supplier questioned whether the store closures go far enough: “I’m surprised that there are not more stores to close. My only worry is whether 20 stores is enough in order to gain enough money to do things it needs to do to modernise.

“I’m not sure what it means in terms of insurance cover, but it gives us confidence that they’re trying to trade the business and making changes to make sure they’ve got infrastructure and cash they need. If they’re doing it as a lifeline to just give them another year to trade, I’d be disappointed.”

Another supplier warned the store closures would have a knock-on effect on other businesses: “It’s going to screw suppliers by closing 20 stores [in terms of volumes of orders]. It will have a knock-on effect on other healthy companies. It’s a complete disaster. The CVA will save a lot of money, but Debenhams will lose credibility and [affect its] credit rating for suppliers.”

Ed Cooke, chief executive at retail property body Revo, said: “As [executive chairman] Terry Duddy said last week, the CVA will impact only landlords and local councils. So investors, other retailers and the man and woman on the street are suffering as a consequence of historic poor management decisions that left the business in this precarious situation.

“We will continue to work with government and industry bodies to deliver reform of the CVA regime to stop the damaging impact they are having on towns and cities across the country.”

Duddy said: “I am grateful to our suppliers, our pension stakeholders and our landlords, who have overwhelmingly backed our store restructuring plans. We will continue to work to preserve as many stores and jobs as possible through this process. This is a further important step to give us the platform to deliver a turnaround.”

 

 

Readers' comments (1)

  • darren hoggett

    The short answer is no. Their plans aren't serious and is all part of the end game as I'm sure their more savvy suppliers have noted.

    As for them losing credibility, you have to have credibility to lose it in the first place.

    As I've posted elsewhere, CVA's do not make bad retailers become good ones and you can now add Debenhams to the pot.

    Unsuitable or offensive? Report this comment

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