LONDON (BLOOMBERG) - The UK retail industry suffered one of the harshest blows yet after two of the country's best-known retailers collapsed, putting 25,000 jobs at risk in less than 24 hours.
Debenhams said on Tuesday morning (Dec 1) it's preparing to close its doors for good after failing to find a buyer. Late on Monday, Philip Green's Arcadia Group, which owns brands including Topshop and Dorothy Perkins, began insolvency proceedings.
Both retailers have anchored malls and main streets across Britain for decades and operate about 600 stores combined. UK retailers have suffered a double whammy: the pandemic hit as many were struggling to adjust to online competition. The industry is set to lose 235,000 retail jobs this year, according to the Centre for Retail Research.
The failure of Arcadia and Debenhams is "truly devastating" in a country where main streets are being increasingly hollowed out, said Richard Lim, chief executive officer of Retail Economics, a consultancy. "We cannot overstate the significance of the collapse given the vast property portfolio, number of jobs impacted and the reverberations felt across the industry."
The UK government stands ready to support employees of both retailers, Finance Minister Rishi Sunak said in the House of Commons on Tuesday.
Debenhams, a 232-year-old UK department-store chain, has been struggling for years as consumers shifted to online shopping and store visits declined. In April, the company filed to continue operating under administration while seeking a buyer.
The chain decided to wind up the business Tuesday after talks to sell the business to JD Sports Fashion failed. Arcadia is the biggest concession partner of Debenhams, and after that retailer failed, the sportswear retailer said the purchase was no longer appealing.
Debenhams said it had no choice but to start winding down the business, given the prolonged effects of the pandemic. It's still open for offers for all or parts of the company.
The decision is a blow to Debenhams' lenders, a consortium of financial investors including Silver Point Capital and GoldenTree Asset Management, who took control of the chain last year as it struggled under a £720 million (S$1.29 billion) debt load. At the time the company rejected rescue offers from retail tycoon Mike Ashley, the founder of Frasers Group.
Ashley may now return once again as a suitor as Debenhams is liquidated. He acquired rival retailer House of Fraser out of administration in 2018. The tycoon has also expressed interest in buying Arcadia.
Arcadia has appointed Deloitte to run the administration and the consultancy now has eight weeks to draw up initial proposals for the business, which could include a sale of all or part of the group. No job losses have been announced yet but they are likely to start mounting in the coming weeks as unprofitable stores are closed by the administrator.
The business employs 13,000 people across 466 stores, of which 444 are in the UK.
Arcadia's performance suffered from the nimbler growth of online rivals, such as Asos and Boohoo, and a heavy cost burden, bogged down by expensive store rents and property taxes.
Creditors to Arcadia will now be lining up to get repaid from asset sales if no buyer or new financing emerges. Among them, the company has a £310 million loan with Apollo Global Management secured on its flagship store on Oxford Street. The subsidiary that owns that property has hired KPMG as administrators to assess options for the 100,000 square-foot site, which used to welcome 400,000 customers a week before the pandemic.
Another liability is Arcadia's pension plans, which the company agreed to provide security for last year to the value of 210 million pounds. The Unite union has warned that employees may lose their pensions as a result of the administration. The Pension Protection Fund is now assessing whether the schemes can be rescued, according to a statement on Monday.