Shares in Debenhams rose 15 per cent yesterday after the retailer revealed plans to close up to 50 of its stores.
Despite posting a loss of £491.5 million, the worst over in its 240 year history, the market seemed keen to hear details on Debenhams’ strategies for surviving the next few years.
The department store chain said it planned to close up to 50 under-performing stores out of its 165 store portfolio over the next three to five years, a move that could potentially result in the loss of up to 4000 jobs.
Investors appeared to be buoyed by chief executive Sergio Bucher’s assurances that the colossal loss was a one-off, and that the retailer was now looking to begin a new chapter.
“Debenhams has side-stepped the formal CVA path, preferring to negotiate on a one-to-one basis with landlords to secure rents based on more viable, long-term arrangements,” Menzies LLP business recovery partner Simon Underwood said.
“This is a brave move in view of the massive losses reported.”
Altus Group head of business rates Robert Hayton said: “Department stores are beginning to look like the dinosaurs of the high street.
“Big rents, high rate liabilities, large staffing needs, and leases that are difficult to give up all conspire to create a beast unable to adapt to a rapidly changing retail climate.”
John Webber, head of business rates at Colliers International, also said business rates would play a part in deciding which stores Debenhams will consider closing.
Colliers analysed the rates bills of 46 of the hardest hit stores and found that over the next three years they will be paying £6.4 million in business rates than they should have been, had their rates bills been allowed to reach their true level immediately.
It is no wonder Debenhams is looking at shutting up to 50 stores and is trying to reduce its rent bills or cut its store sizes in some areas. As business rates are tied to rental values, it would be mad not to,” Webber said.
Meanwhile, other analysts remained cautious of Debenhams’ ability to turnaround its financial state.
“Regardless of [the £491.5 million loss], Debenhams remains profitable [before exceptionals] and has laid out plans for ongoing cost savings including cutting its dividend this year,” GlobalData senior retail analyst Sofie Willmott said.
“Although the Debenhams’ Redesigned strategy targets its problem areas, we are yet to see clear evidence that it is paying off with the retailer’s sales and share price following the same downward trajectory over the past year.
“Reducing its store estate will allow the brand to focus on its biggest cash-driving branches but remodelling 100 stores, as the retailer is likely to want to do following the ‘store of the future’ template being trialled in Watford, is going to be a costly business.”
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