Debenhams denies cash crunch as report says credit insurance cut
today Jul 16, 2018
Struggling department store chain Debenhams faces a fresh challenge with credit insurers tightening up the terms for its suppliers, suggesting a lack of confidence in its turnaround strategy. But the company has denied it’s facing a cash crunch and said its cash position is “healthy”.
The Sunday Times reported that Euler Hermes has cut back its cover “dramatically” for suppliers, while Atradius and Coface are also believed to have refused to cover new shipments in the last few days.
Credit insurance is a key feature of the supply chain as it gives suppliers the confidence that they’ll be paid even if a retailer goes under. Without that insurance, they could demand upfront payment or refuse to do business with the firm, potentially denting the stores’ cash flow or cutting off its access to some product.
While rival department store House of Fraser has been one of the high profile casualties of the tough retail environment this year and recently entered into a CVA with plans to close more than half its stores, Debenhams has been more resilient. However, it has still issued multiple profit warnings this year, revealed unimpressive sales figures, and plans to sell its profitable Magasin du Nord chain in Denmark to bolster its cash position.
Profits this year are predicted to be between £35 million and £40 million, down from as much as £150 million just five years ago.
Debenhams has 176 UK stores and 27,000 staff and is in the middle of a massive turnaround programme designed to boost expanding categories such as beauty, while reducing its exposure to fashion, but also introducing fresher names into its fashion offer.
But the newspaper said that heavy discounting at House of Fraser, and consequent price-matching at John Lewis, is adding to the pressures on Debenhams at present.
Tony Shiret, an analyst at broker Whitman Howard, told the Sunday Times that "everyone knows Debenhams is in a difficult position. It has been so hot that people haven't been shopping at all, and everyone on the high street has gone ‘on sale’ two to three weeks earlier this summer.” But the company said it maintains a “healthy balance sheet”. It also said it has “a regular and constructive dialogue with credit insurers.”
Copyright © 2020 FashionNetwork.com All rights reserved.