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Debenhams store closures – key questions answered

Store closures will reduce the Debenhams estate to about 100.

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Debenhams is closing stores and axing jobs (Tim Ireland/PA)

Debenhams is closing stores and axing jobs (Tim Ireland/PA)

Debenhams is closing stores and axing jobs (Tim Ireland/PA)

Struggling department store Debenhams plans to axe up to 50 outlets, putting around 4,000 jobs at risk, after announcing its biggest ever loss of £500 million.

The closures will reduce the Debenhams estate to about 100 and come on top of 10 earmarked earlier this year.

Why is Debenhams in trouble?

It has been affected by a combination of factors including the rise of online shopping, high rents and business rates and a collapse in consumer confidence.

Along with rising costs linked to the fall in the value of the pound following Brexit, these factors have conspired to hammer retailers across the board this year, but department stores have been hit particularly hard.

House of Fraser has collapsed into administration, while high street stalwart John Lewis has also struggled amid questions about the relevance of big box stores in a sector in flux.

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Sports Direct founder Mike Ashley owns just under 30% of Debenhams (Joe Giddens/PA)

Sports Direct founder Mike Ashley owns just under 30% of Debenhams (Joe Giddens/PA)

PA Wire/PA Images

Sports Direct founder Mike Ashley owns just under 30% of Debenhams (Joe Giddens/PA)

What does Mike Ashley have to do with it?

Debenhams is also the subject of takeover talk, with speculation building that Mike Ashley is set to merge it with House of Fraser, which the tracksuit tycoon acquired in August.

The Sports Direct boss owns just under 30% of Debenhams, close to the threshold at which he must launch an official takeover bid.

However, Debenhams has long leases on many of its 166 stores, meaning it has liabilities of more than £4 billion over 25 years.

No bidder would want to buy the chain saddled with such a burden, on top of poor trading. And Mr Ashley typically buys firms when they are in administration.

What are the experts saying?

Julie Palmer, partner at Begbies Traynor, said: “Only time will tell whether this approach will work, but it appears to be that this is one of the few options it has to survive.

“However, there is promise for the retailer as its digital offering has grown quickly in the past year – 12% according to this report – a sign that it is willing to flex its model and to update the way it trades for the modern consumer and follow where other retailers have found success.”

Clicks are beating bricks Laith Khalaf, Hargreaves Lansdown

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Debenhams’ decision to close 50 stores reflects the new harsh economic reality on the UK high street. Clicks are beating bricks, and retailers are having to cut their cloth accordingly.

“Consumers are increasingly spending their money on experiences rather than stuff, and Debenhams is using some of its space to capitalise on that trend, with gyms and food outlets being opened in department stores.”

Sofie Willmott, senior retail analyst at GlobalData, said: “Although the strategy is wise considering that retail spend is shifting away from physical stores, the closures will have a significant impact on smaller town centres, many of which are unlikely to have another major anchor store.

“Footfall to town centres will be affected and as a result other retailers on the high street will be hit by Debenhams’ closures.”

PA