(Reuters) - Debenhams plans to close 22 stores next year, putting about 1,200 jobs at risk, under a scheme designed to put the ailing British retailer on a stable financial footing.
Debenhams’ lenders took control of the retailer earlier this month in an effort to keep stores open, a deal which wiped out the company’s shareholders, including Sports Direct boss Mike Ashley, who had tried to take control of the business.
The retailer on Friday gave details of two proposed company voluntary arrangements which would keep all stores open during 2019, but with 22 closures planned for next year.
Once the country’s biggest department store chain, Debenhams has been hit by a sharp slowdown in sales, high rents and ballooning debt, plus a power struggle with billionaire shareholder Ashley’s Sports Direct.
Administrators were appointed after Ashley’s last-ditch bid to rescue the company failed. They sold the group to its creditors including British banks and U.S. hedge funds.
CVAs allow retailers to avoid insolvency by offloading unwanted stores and securing lower rents on others and reach a compromise with creditors. They have been adopted by other British retailers including fashion chain New Look.
“In order for the business to prosper, we need to restructure the group’s store portfolio and its balance sheet, which are not appropriate for today’s much changed retail environment,” Debenhams Executive Chairman Terry Duddy said.
“Our priority is to save as many stores and as many jobs as we can, while making the business fit for the future.”
Debenhams said some of its financial creditors recently provided 200 million pounds ($258.06 million) of fresh liquidity and have committed to converting 100 million pounds of debt to equity.
Debenhams net debt stood at 417.4 million pounds as at March 2.
The CVAs ultimately aim to reduce Debenhams’ current 166 UK store portfolio by closing about 50 stores, the first stage of which proposes 22 closures in 2020.
The retailer separately reported a 36.3 percent fall in core earnings before exceptional items to 65.9 million pounds for the 26 weeks to March 2, hurt by a dip in sales and falling margins.
In business since 1778, Debenhams has been battling for survival after a consumer shift online and to cheaper outlets left it with too much retail space on struggling high streets.
The company could close more stores over five years, the final number being dependent on its performance, the retailer said. Debenhams said it would try to redeploy as many affected staff as possible.
Creditors will vote on the CVAs on May 9.
Reporting by Noor Zainab Hussain in Bengaluru; Editing by Gopakumar Warrier/Shounak Dasgupta/Jane Merriman