Debenhams rescue by Mike Ashley could save thousands of jobs but talks likely to hinge on stock
The retail entrepreneur’s Frasers Group, formerly Sports Direct, cautioned that unless talks can be concluded rapidly, it may not be able to save Debenhams’ UK business.
A rescue deal could save at least some of the 12,000 jobs that have been put at risk by the retailer’s potential liquidation. However, there are complications, and if a deal is not agreed quickly, Frasers said it may not go ahead.
In a statement to the stock market, the group said: “Whilst Frasers Group hopes that a rescue package can be put in place and jobs saved, time is short and the position is further complicated by the recent administration of the Arcadia Group, Debenhams’ biggest concession holder.
“There is no certainty that any transaction will take place, particularly if discussions cannot be concluded swiftly.”
Last week saw a bloodbath on the high street as both Debenhams and Sir Philip Green’s Arcadia, which owns Topshop and Burton among other well-known brands, were put at risk.
Debenhams looked as though it might disappear from the high street after 242 years when JD Sports pulled out of a potential deal to buy the business out of administration.
Frasers finance boss Chris Wootton signalled over the weekend that his company might be interested in a deal for Debenhams.
Analysts at Shore Capital said: “Any potential deal will centre on the current and future stock position in Debenhams. In our view, this will all depend on the amount of stock left in the business, which is declining at pace.
“Any deal with Frasers Group would probably see a portfolio of Debenhams operated under a 12-month licence. We also wonder how many Debenhams stores that will survive long term, alongside Fraser Group’s House of Fraser fascia. Many of the stores sit adjacent to each other.
“We believe that JD Sports walked away having considered the issues, noting that the capital expenditure required and increased execution and reputational risks would come to the fore. The change in ownership of Arcadia, perhaps as pure-play brands was the final straw, in our view.
“Frasers is known to be a hard negotiator and will probably walk away rather than over pay. It has a history of acquiring distressed brands.”
Professor John Colley, associate dean of Warwick Business School, said: “Mike Ashley has learnt the best way to buy a business is out of administration as there is no debt and all contracts can be renegotiated. This is ideal as his real strength is negotiating efficient and low cost supply chains.
“If he is successful Debenhams is likely to take on the same feel and appearance as his House of Fraser stores, lacking in soul, with cut down ranges and much reduced floor space. However, that is much better that the alternative - major closures and hollowed out town centres.”
The collapse of Arcadia and Debenhams triggered fears over hundreds of store closures and the loss of some 25,000 jobs.