Dealing with nosy neighbours

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Walk down Oxford Street and you can’t help but be struck by the row of grand department stores. But it is the changing fortunes of two of them that is currently most striking.

Tough high street conditions have been forcing all retailers to look very hard at their operating models this year. The problems at House of Fraser became only too apparent in June when it set out plans for a CVA involving the closure of 31 of its 59 stores and renegotiating rents on the rest of its stores.

Malory Davies, FCILT, Editor.

Malory Davies, FCILT, Editor.

In the event than never happened. The company went into administration on 10th August and was bought by Sports Direct in a pre-pack deal. Unsecured creditors of the old business are owed some £484m, according to administrators Ernst & Young. They include XPO Logistics (owed £30.4m), Allport Freight (owed £502,000), and Yodel (owed £711,000).

While HoF’s administration has been very bad news for its suppliers and the people working for them, it has reinvigorated the HoF business and dramatically changed its competitive position.

And nowhere has that impact has been felt more strongly than a few yards along Oxford Street at Debenhams, which was forced yesterday into releasing a trading statement after speculation that it too might be planning a CVA.

In fact, Debenhams chairman Sir Ian Cheshire complained to BBC Radio 4’s Today programme that it had to put out the early trading statement to stop “nosy neighbours” gossiping about its future.

The trading statement shows that the retailer expects to report a full year pre-tax profit of £33 million before exceptional items and says it had “significant headroom” in its existing borrowing facilities.

Chief executive Sergio Bucher highlighted the work that has been done in developing a leaner operational structure, saying: “The market environment remains challenging and underlying trends deteriorated through the summer months… Having put in place a leaner operational structure and strong leadership team, and taken action to strengthen our financial position, we are well equipped to navigate these market conditions and take advantage of any trading opportunities that emerge.”

But the pressure on retail supply chains is all too apparent. Already the property industry has called for a review of the way the CVA process works complaining of a lack of transparency and unfair discrimination between different creditors.

Melanie Leech, chief executive of the British Property Federation, said in June: “Urgent action is required and we are calling on the government today to undertake a review so that we can restore the CVA process to its original purpose.”

Of course, it is the challenge of online that is putting traditional retailers under pressure. Not surprisingly, there have been calls for the government to level the playing field between the high street and online fulfilment centres on business rates – calls that the government seems determined to resist at the moment.

And that means that for many retailers, and their supply chain partners, the process of reinvention will need to continue if they are to thrive in the changing market environment.

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