Takeover, scandal and debt – the colorful decades that ended with the fall of Debenhams | Economic news
COVID-19 has turned out to be the final nail in the coffin for Debenhams.
But the seeds of destruction of this highly regarded company were sown many years ago.
Debs, whose origins can be traced back to a cloth shop that opened in London’s West End in 1778 and was later renamed following an investment by William Debenham in 1813, was a family business for the first 150 years of his life.
It was floated on the stock exchange in 1928 and continued to trade profitably thereafter.
Enter Sir Ralph Halpern, Managing Director of The Burton Group, one of the UK’s largest retailers and the company which ironically now forms the bulk of Sir Philip Green’s Arcadia empire.
Sir Ralph, one of the most colorful business figures of recent times, teamed up with Sir Terence Conran’s Habitat-Mothercare business to launch a take-over bid for Debs in May 1985.
A fierce battle ensued in which rival House of Fraser, then owned by controversial brothers Mohamed and Ali Al Fayed, sought to derail the deal.
Sir Ralph eventually triumphed with a £ 566million takeover and Debs joined the Burton group at the end of 1985.
The takeover, later considered by the Department of Trade and Industry, was not a success – the fortunes of the larger Burton group deteriorated for several reasons.
By the end of 1986, the lavish salaries paid to Burton’s top executives began to elicit negative feedback from shareholders, especially the £ million paid to Sir Ralph – now commonplace in boardrooms but, at the time, a huge amount of money.
Then, in January 1987, the News of the World revealed that Sir Ralph, who was 48 at the time, had an affair with a 19-year-old model named Fiona Wright.
His racy revelations about his bedroom prowess, which led him to be called the “five-time knight,” catapulted him from business pages to the front pages.
Both events shook Sir Ralph’s confidence and angered investors.
Sir Ralph launched a £ 200million program – already expensive at the time – to renovate Debenhams stores.
It took a long time to pay off, and when commercial real estate market values began to decline in 1988, Burton was left with too much debt.
Sir Ralph was fired in November 1990 and Burton had to scramble to reduce his borrowing.
Harvey Nichols, who has been with Debenhams since 1919, was sold to Hong Kong businessman Dickson Poon for £ 60million in 1991.
In the years that followed, a new management team including Stuart Rose – who would later become chairman and CEO of Marks & Spencer – restored Burton’s fortunes, with Debenhams becoming the most profitable part of the business through initiatives such as its ‘Designers at Debenhams’ concept.
It was therefore a surprise when, in 1997, Burton announced the demerger of Debenhams.
John Hoerner, the American retailer hired by Sir Ralph to run Debenhams but who now runs the expanded Burton, chose to stay with the latter.
Burton was renamed Arcadia and retained concessions at Debenhams outlets – a move that 23 years later left the fortunes of the two companies intertwined.
As a stand-alone business, led by Terry Green, the new Debenhams company announced major expansion plans and opened more than a dozen new stores.
But only two years later, Mr Green rocked Debs by resigning to join BHS, which had just been bought out by its namesake – not a relative – Philippe Green.
He was replaced by Belinda Earl, who had been a “Saturday Girl” at her local Debenhams in Plymouth as a teenager, under whom the business flourished.
The private equity industry has noticed.
Ms Earl and her CFO, Matthew Roberts, helped buyout firm Permira launch a £ 1.54 billion takeover bid in July 2003.
They ended up being outbid later in the year by Baroness Retail, a rival consortium formed by CVC Capital, Texas Pacific Group and Merrill Lynch Global Private Equity, which ultimately triumphed with a knockout of £ 1.7 billion. sterling.
Ms Earl stepped out and entered a team of executives who had already made a name for themselves with a turnaround from the Homebase DIY chain.
Shortly thereafter, the team raised funds on its real estate assets, before raising in February 2005 £ 450million in a sale-leaseback agreement involving all of Debenhams’ freehold properties, including including its flagship store on Oxford Street in London.
This meant that alongside other measures such as cutting capital spending and squeezing suppliers, the new owners of Debenhams more than tripled their investment in less than three years.
Only, as it turned out, at the expense of future growth and profits.
The sale-leaseback agreements imposed costly overheads and 30-year store leases on Debs as buyers increasingly moved online.
When Debs returned to the stock market in May 2006, at a valuation of £ 1.675bn, it was a bare bones company compared to one that had been private three years earlier.
Various CEOs, first longtime Michael Sharp, then former Amazon fashion chief Sergio Bucher, tried unsuccessfully to re-establish the business against these headwinds, but onerous store leases and interest payments on its debts absorbed most of the profits and deprived Debenhams of working capital.
Former chairman Sir Ian Cheshire told Sky News today there is a core of around 70 stores and a very good website that could generate interest.
To that end, it is perfectly possible that the name of Debenhams – who counted Queen Victoria among his clients – could still live on.
But it’s tempting to speculate that without his recent history and various changes in ownership, Debs wouldn’t find himself in his current situation.
And 13,000 employees would not consider laying off a few weeks before Christmas.