Department store in grip of a perfect storm

Why is Debenhams in trouble?

It has been affected by a combination of factors including the rise of online shopping, high rents and business rates and a collapse in consumer confidence. Along with rising costs linked to the fall in the value of the pound following Brexit, these factors have conspired to hammer retailers across the board this year, but department stores have been hit particularly hard.

House of Fraser has collapsed into administration, while high street stalwart John Lewis has also struggled.

What does Mike Ashley have to do with it?

Debenhams is also the subject of takeover talk, with speculation building that Mike Ashley is set to merge it with House of Fraser, which the tracksuit tycoon acquired in August.

The Sports Direct boss owns just under 30% of Debenhams, close to the threshold at which he must launch an official takeover bid.

However, Debenhams has long leases on many of its 166 stores, meaning it has liabilities of more than £4 billion over 25 years.

No bidder would want to buy the chain saddled with such a burden, on top of poor trading. And Mr Ashley typically buys firms in administration. What are the experts saying?

Julie Palmer, partner at Begbies Traynor, said: “Only time will tell whether this approach will work, but it appears to be that this is one of the few options it has to survive.

“However, there is promise for the retailer as its digital offering has grown quickly in the past year – 12% according to this report – a sign that it is willing to flex its model and to update the way it trades for the modern consumer and follow where other retailers have found success.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Debenhams’ decision to close 50 stores reflects the new harsh economic reality on the UK high street.”