Debenhams teeters as domino effect from Arcadia’s collapse hits talks with JD Sports

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Debenhams’ department stores are set to go into liquidation after last-ditch talks to save the business with JD Sports Fashion PLC (LON:JD.) were terminated. 

JD announced the end of its potential rescue bid on Tuesday morning, followed the overnight collapse into administration of Sir Philip Green’s Arcadia Group, whose retail brands, which include TopShop, Miss Selfridge and Dorothy Perkins, are the biggest concession holder at the Debenhams, accounting for around 5% of annual revenues.

In its second administration of recent years, Debenhams has been looking for a buyer but private equity owners Silver Point Capital could not agree on a price with JD nor Mike Ashley’s Frasers Group PLC (LON:FRAS).

Failure of the JD talks means that restructuring firm Hilco will now take charge of a break-up of the group.

Debenhams and Arcadia employ over 25,000 staff between them.

This week’s news represents a bleak moment for the high street but not a surprising one in 2020, said Julie Palmer, partner at insolvency specialist Begbies Traynor: “The pandemic has had a hugely corrosive effect on traditional retailers but especially for those with a significant physical presence on the High Street, which has largely been a consumer no-go zone for the majority of the year.”

On JD Sports’ decision, she said that management are likely to have been “particularly spooked by the inability to predict the future course of Covid restrictions, which could further limit footfall”.

Knock-on effects

Shares in JD were up 3% to 797.6p on Tuesday morning, while Frasers’ were more than 4% higher at 440.72p.

The lack of potential competition saw Marks and Spencer Group PLC (LON:MKS), Next (LON:NXT) and Primark owner AB Foods (LON:ABF) all rising more than 1%. 

Research from GlobalData revealed people who shopped for clothes at Debenhams, 48% also had visited M&S to buy clothing, versus 33% for Primark and 31% for Next and 24% for Sainsbury’s (LON:SBRY) Tui line. 

Online specialist Boohoo (LON:BOO), which City speculators suggest is likely to be interested in Arcadia’s brands, was up 2%.

Susannah Streeter, senior investment and markets analyst, at Hargreaves Lansdown said: “The retail house of cards on the high street is in danger of collapse.

“Shares in Frasers Group and Marks and Spencer rose strongly in early trading with expectations they could be the last big department store chains standing in town centres. Frasers Group is also a strong contender to snap up the distressed brands up for sale.  

“Some of those gains though were erased amid concerns about the wider malaise on the high street. A nightmare before Christmas is unfolding for 25 thousand employees who will lose their jobs if buyers are not found for parts of both businesses.” 

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