Debenhams makes plans to file for administration as a protective move

Debenhams is lining up administrators to protect the struggling business amid the COVID-19 crisis, though no firm decision to appoint them has been made.

The struggling department store may file a notice of intention to appoint administrators as early as next week with KPMG said to be waiting in the wings.

While the move has yet to made and another solution could be found, the lenders to the 242-year-old business are said to be reluctant to provide further support unless a further round of rent cuts can be made.

Debenhams has already furloughed most of its 22,000 workforce as its 150-plus stores are temporarily shuttered due to the mandatory shut-down of non-essential retail in the UK. In January the company, which had been trading under a CVA, closed 19 stores permanently and was gearing up to close more in 2021.

In a statement sent to Sky News, the company said: "Like all retailers, Debenhams is making contingency plans reflecting the extraordinary current circumstances.

"Our owners and lenders remain highly supportive and whatever actions we may take will be with a view to protecting the business during the current situation.

"While our stores remain closed in line with government guidance, and the majority of our store-facing colleagues have been furloughed, our website continues to trade and we are accepting customer orders, gift cards and returns."

The company had already told landlords that it required a five-month rent holiday and suppliers have been warned of extended payment terms.

Nigel Frith, a senior market analyst at www.asktraders.com said the move came as no surprise. "This one has been on the cards for a while. Debenhams was already on very shaky ground prior to the coronavirus outbreak, 2020 was going to be its make or make year.

"However, Covid-19 has brought all the retailers’ problems to head a little earlier than expected. After 242 years on the high street there is a good chance that many, if not all of the department stores' doors won’t be opening after the UK wide lock down ends.

"What we are seeing here is simple - if the firm was in a weak position going into the coronavirus lock down, there is a good chance that it won’t come out the other side. In recent years fast fashion and online businesses have thrived, whilst our more traditional brands have struggled to transform.i

"So far, we aren’t quite at the administration stage, but it is definitely an option on the table to, protect Debenhams from legal claims from creditors that it owes money to during the coronavirus outbreak. Next week will be judgement week for Debenhams. Debenhams made £72 revenue each second in 2019 however only made less than 1% of that as profit showing how online businesses such as Boohoo and ASOS were made for this current pandemic and will continue to thrive."

Sofie Willmott, Lead Analyst at GlobalData, said another administration was just prolonging the demise of the retailer: “Placing Debenhams into administration for the second time within twelve months will tide it over for now, freeing it from debts but ultimately its owners are merely stringing out its demise and its long-term future remains bleak. With significant further investment in the business now very unlikely, it is difficult to see what will attract shoppers back once its stores can reopen."

“The department store chain was in already trouble before the COVID-19 pandemic hit and the sharp shift in consumer shopping habits will only speed up inevitable changes in the UK market. Weaker retailers without a unique selling point will be weeded out, with many unable to survive the year."

Debenhams had previously been listed and was bought out of administration last year by a consortium of its investors, led by US firm Silver Point Capital, called Celine Jersey Topco.