Experts on how Debenhams stores in Norfolk will fight for survival
PUBLISHED: 06:00 12 April 2019 | UPDATED: 08:35 12 April 2019
© ARCHANT NORFOLK 2009
The saga of Debenhams's demise has come to its conclusion with the company being placed into administration.
Fingers have been pointed across the boardroom and between shareholders in a bid to determine who is to blame for the collapse of a company which was once a pillar of the UK’s high street.
Rescue deals from retail tycoon Mike Ashley were repeatedly rebuffed by the business, which in the end chose to place its fate in the hands of lenders instead of seeing the controversial billionaire sit as executive of the chain.
How the unravelling of Debenhams will impact Norfolk’s stores and staff remains to be seen, though retail analysts in the county have already begun hedging their bets.
Prof Joshua Bamford is the director for the Centre of Retail Research based out of Union House in Norwich’s Rose Lane.
He said: “Debenhams has had problems because all of its value was extracted out of it, and it was used as a money-making machine.”
Prof Bamford was referring to the fact that Debenhams was taken over by a private consortium in 2003 who invested £600m into the company but raised a further £1.8bn through new debt.
The consortium also sold off freehold properties it owned and slashed refurbishment spending by 77% per square foot.
“It’s a risky business to sell of freeholds because instead they had to take on long-term leases. They did it to get more profit into the company,” Prof Bamford explained.
“The problem with this is that Debenhams couldn’t be dynamic in moving about – they were stuck in one spot for 15 years which weren’t necessarily the best locations as time moved on.”
In 2006 the business was once again floated on the London Stock Exchange (LSE) taking it from a private to a public company.
“A lot of people have lost a lot of money over this because they bought shares which have just been run into the ground,” Prof Bamford said.
“Debenhams lost their value twofold – they sold their sites but also stopped investing. They didn’t refurbish sites so they ended up looking old and tired – they couldn’t compete.”
However, the academic was not surprised by the sparring between the board and Mr Ashley who had a 29% stake in the business.
Mr Ashley made a series of rescue offers which ended in a shocking request that two members of the board undertake lie detector tests and stocks be suspended.
As a result of the lender takeover Mr Ashley’s shares have been wiped.
“I can see why they didn’t want Mr Ashley to take over,” Prof Bamford said.
“Although he’s clearly very good at doing what he does, I don’t think he has a suitable candidate to run a department store chain.”
He added: “What I think Mr Ashley took to the board was a merge of House of Fraser and Debenhams to cut costs and boost profit. It just wouldn’t work.
“But I can see why Mr Ashley was making such a go of trying to rescue Debenhams. If I had lost £150m I’d be pretty upset too.”
Ratula Chakraborty is a professor of business management at the University of East Anglia.
Looking at the future of the company, Prof Chakraborty said: “There is a chance that Debenhams will receive an offer to take them out of administration but there are very few suitors with deep pockets to bail out this struggling retailer.
“Debenhams is caught in the middle, neither providing a high-end service like a top department store nor a basic service like a discount store, and as a result it is being squeezed by declining sales and declining margins in the face of weakening high street sales as consumers move to online shopping.
“Debenhams needs to cut costs by reducing the number of its stores while investing in in-store service and building up its brand, which has been deeply tarnished by the negative publicity surrounding its financial problems.”