2018 retail figures confirm uncertain future for Debenhams
Following the publishing of Debenhams’ trading figures for Christmas 2018, our partner and insolvency specialist, Michael Mulligan, shares his thoughts on the turmoil affecting UK retail:
The desperate state of the UK’s retail industry is evident for all to see and Debenhams’ trading figures released today only highlight the extent of the situation. The retail sector had its worst Christmas for a decade, and although Debenhams claims it achieved “the best possible outcome” during the festive period, those sales cannot make up for endless months of poor financial performance. After suffering the biggest losses in trading history in 2018, stakeholders’ trust in Debenhams will not be regained through this small uplift.
The business has failed to compete successfully with online retailers, high-end luxury stores and the discounter market, which invariably bucks the wider sector trend. Due to this, Debenhams has been unable to retain its mid-market position and failing to report its financials since last August has only foreshadowed this recent bad news.
However, this is not purely the fault of management. Market conditions are not ideal, with customers unsure about the state of the economy and reining in spending as a result. This has led to consumers searching for the best possible prices, which can usually be found online.
The plans implemented last year to recover the business from its long-term decline have not worked. Lenders have been prompted to explore the option of make-or-break restructuring, looking to external restructuring consultants for advice. This could involve the closure of stores and the loss of many jobs up and down the country.
A Company Voluntary Arrangement (CVA) is the most likely rescue option going forward for Debenhams. An unpopular measure with commercial landlords, many of whom have seen their rental incomes drop dramatically, this restructuring mechanism was used by multiple retail and casual dining sector businesses last year in order to close failing outlets.
Accepting that a business is failing is an essential – although often difficult – step for company directors. Acknowledging the problem allows plans to be put in place at the earliest possible stage to react to changing market conditions before irrecoverable damage is done.
Unfortunately, Debenhams may have been too late with its attempt at restructuring and could soon be the next retailer to meet its demise under the UK’s tough trading conditions.