Debenhams to file for administration following coronavirus pandemic

MarketLine   7 April 2020 (Last Updated April 7th, 2020 14:58)
Debenhams to file for administration following coronavirus pandemic

Debenhams has voluntarily entered administration for the second time in a year to fend off a collapse into liquidation following the coronavirus outbreak, which has adversely affected retailers.

This move comes at a time of economic uncertainty and Debenhams aims to secure more funding from owners and lenders in a bid to save the already struggling retailer.

Following the recent government announcement of a furlough scheme, the majority of Debenhams staff are currently being paid under the coronavirus job retention scheme, which pays 80% of a worker’s salary up to £2,500 a month.

Debenhams has  been struggling in recent years

Debenhams has been in financial difficulties for a number of years prior to the current crisis. It has already closed 22 stores this year and plans to shut a further 28 in 2021 as it seeks to reduce costs and focus on profitable sites. The lockdown has further exacerbated the pressures the struggling retailer was already facing.

Many British retailers had already been under strain for the last two or three years because of the uncertainty surrounding Brexit and its effect on consumer confidence. In addition to this, the surge in online retail has affected traditional retailers who have failed to keep up.

Modern consumers expect digitally-relevant and engaged brands, where being constantly on-trend on social media is the norm. Here, Debenhams has not been able to compete with younger, more-affordable and digitally-savvier brands.

Fast fashion and disposable clothing have also changed consumer shopping habits.  Consumers now expect new trends to enter stores or be available online quickly. Debenhams clothing items have been criticised for being stocked in store over prolonged periods of time, in comparison to its competitors Boohoo and Primark, which are releasing new lines every other week.

In addition to this, Debenhams has become a victim of Britain’s high street malaise. Clothing retailers have seen the biggest decline since 2013, with nearly 800 stores lost. Department stores are notoriously expensive to run, with high rates and onerous lease liabilities, as well as large staffing needs and leases that are difficult to give up. This is an area where Debenhams has experienced great difficulty; running costs are rising while footfall through the shops and profit margins are falling.

The decision to enter voluntary administration seems sensible in a bid to keep the business mothballed until the lockdown ends. However, the question remains as to whether Debenhams will be able to survive and re-establish its position in the market, following the aftermath of this global pandemic.