Debenhams under pressure
Monday 10 September 2018
AS SHARES in Debenhams crash, retail expert Dr Gordon Fletcher looks what is going on behind the scenes.
Dr Fletcher, of the University of Salford Business School, said: “Last month's purchase of House of Fraser by Mike Ashley's Sports Direct group was a significant moment in the changing face of the UK High Street.
“Now another retail icon is seeking professional advice around its future. Debenhams is now considering the use of a Company Voluntary Arrangement (CVA) in an effort to manage the overhead of its massive rental bill. The news of these discussions has hit Debenhams' share price seeing it sink to just over 10p.
“With Mike Ashley owning nearly 30% of Debenhams and having previously been rumoured to be interested in a complete takeover, this is a warning signal to expect change. The use of CVAs by large retailers in the last two years has had a poor history with many of the large retailers attempting to use this mechanism later failing completely, examples include Maplins, Toys R Us and Cau restaurants.
“CVAs attempts to unlock retailers from long-term and expensive leases. The proposal is inevitably an unappealing action for the landlords of the affected commercial properties - who have to satisfy their own investors.
“All of these attempts to save the icons of the high street should reinvigorate discussions around the use of turnover-based rental. This approach shares the risk of operating on the high street by giving property owners a vested interest in the success of retailers.”