Debenhams: credit insurers take fright
There’s a saying that credit insurers do a better job than auditors when it comes to highlighting risk. In which case, watch out Debenhams, said Sabah Meddings in The Sunday Times. After recently issuing its third profit warning this year, the department store chain’s financial health is once more under scrutiny amid reports that credit insurers – including Euler Hermes, Atradius and Coface – are reducing their cover to its suppliers. “Credit insurance is a vital part of the retail supply chain”, protecting suppliers against the risk of a customer going bust before a payment is made. If their cover “dries up”, Debenhams’ suppliers are likely “to seek payment up front”, piling further financial pressure on the group. The problem isn’t just confined to Debenhams. There are complaints across Britain that “credit insurance has been slashed to levels not seen since the financial crisis” – “cranking up pressure on businesses already struggling to stay afloat”. The withdrawal of supplier credit is said to have “created an irreversible tipping point” at the now-defunct electronics retailer Maplin. Debenhams’ top brass insists there’ll be no repeat of that, said Emily Gosden in The Times. The group’s cash position is “healthy”, and set to be bolstered by the imminent sale of its Danish store chain, Magasin du Nord, they say. Even so, nervous investors sent shares down.
You can’t blame insurers for tightening terms at the slightest “whiff of trouble”. They, after all, “are on the hook when retailers fold”, said Kate Burgess in the Financial Times, and last year faced claims totalling £225m – the highest level since 2009. Still, it’s very clear that “something is wrong with the plumbing in the retail sector”. And few need reminding that when the plumbing fails, “the high street dries up”.