Up to 60 Debenhams stores could close next year, putting thousands of jobs at risk, in a bailout deal for the besieged department store group.
JD Sports shares fell more than 6% on Tuesday after it emerged that the company was in exclusive talks to buy Debenhams, to an extent that would lead the sports and casual wear group into a tough new market.
JD is believed to be primarily interested in the Debenhams website, but analysts also estimate it could take almost half of the group’s 124 outlets. This would be in line with a restructuring plan laid out by the owners of Debenhams in a pack aimed at potential buyers, in which the company anticipated the eventual closure of 20 to 60 stores over time.
While other retailers – including John Lewis, Next, and Marks & Spencer – may be interested in a limited number of unwanted Debenhams outlets, the possible closures would endanger thousands of jobs at the group, which employs 12,000. people.
Debenhams has been considering a potential sale since the summer after taking office in April, for the second time in a year.
A deal could be announced before Christmas, but any decision on store closings and related job cuts will likely only come after the festive peak in trading.
Analysts and industry insiders have expressed surprise that JD wants to occupy a large amount of space on main streets as shoppers increasingly switch online. JD has a significant presence on the shopping streets, operating its main sports chain as well as fashion retailer Scotts and the outerwear companies Blacks Leisure and Millets.
An agreement may not materialize. Other potentially interested parties, including online specialist The Hut Group, which is said to be only interested in the website, and Reliance Retail in India, appear to have melted down. Offers from Debenhams’ most persevering suitor, Mike Ashley’s Frasers group, have so far fallen short of the hopes of its owners.
If JD were to make a deal, they would either have to separate the stores or partner with other companies that have expertise in beauty, foodservice, housewares and other types of products sold in the stores. department stores to make it work.
“It’s hard to see how JD would fill this space,” an industry insider said.
One analyst pointed out that JD would have to spend a lot to improve the appearance of stores and that the company was unlikely to please investors.
However, Greg Lawless, an analyst at brokerage Shore Capital, said Debenhams is a leader in the high-end beauty market, owns decent fashion brands including Maine and Mantaray, and could be managed much more effectively by JD. He added that the company would likely hold up to £ 500million in stock by Christmas, giving it assets well above the asking price.
While the potential deal carried execution risk, Lawless said that as a ‘best in class’ retailer, JD “would be able to mine the Debenhams fascia much more efficiently and potentially reap significant margin opportunities ”.
Another motivation for JD boss Peter Cowgill could be to foil or raise the price of any takeover of Debenhams by Mike Ashley’s Frasers group, which owns its main rival Sports Direct as well as the creators chain. Flannels and the House of Fraser Department Store.
Ashley has made no secret of his desire to control Debenhams, where he spent £ 150million to build a stake while it was a listed company to see it wiped out in a debt restructuring deal with lenders from the big shop.
Frasers was due to hold talks on a potential deal on Monday before the exclusivity with JD was agreed. Ashley is believed to be offering only around half of the £ 300million minimum price his advisers are looking for.