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Online fashion retailer Boohoo has acquired Debenhams in a £55 million partial rescue deal that will see the closure of the UK department store chain’s remaining physical outlets.

An excess of 118 stores and the jobs attached to them remain at risk. An estimated 12,000 jobs at the 242-year-old chain are believed to be in the balance.

“The group will only be acquiring the brands and associated intellectual property rights,” Boohoo said in a statement. “The transaction does not include Debenhams’ retail stores, stock or any financial services.”

Debenhams is already in the process of closing down after administrators failed to secure a rescue deal for the business. Brand owner, Sir Philip Green’s Arcadia Group, fell into administration last year, putting 13,000 jobs at risk.

A closing-down sale across the 124-store Debenhams chain began in December. It was recently announced that six of these shops, including the brand’s flagship department store on London’s Oxford Street, would not reopen after lockdown. The remainder will be wound down once they are in a position to reopen.

Though traditional retail sales are in decline across the UK and suffered greater damage during the outbreak of the COVID-19 pandemic, eCommerce has emerged to fill some of the consumer void. Debenhams made roughly £400 million in online revenues in its most recent financial year to 31 August 2020, and Boohoo estimates that its website receives 300 million visits a year.

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Boohoo CEO John Lyttle said Debenhams will operate as a digital “shop window” for Boohoo’s brands, such as Pretty Little Thing, and third-party retailers. There will likely also be “an opportunity to launch the marketplace in international markets over time.”

In a statement on Monday, Frasers Group – owned by retail tycoon Mike Ashley – confirmed that it is in talks with Debenhams’ administrators regarding a possible rescue bid for its UK operations.

The 242-year-old UK department store chain entered administration in April and has since been exploring avenues for rescue. As recently as the end of November, JD Sports had been closing in on a deal to purchase the struggling retailer. But following the collapse of Philip Green’s Arcadia – Debenhams’ biggest concession operator – JD Sports pulled out of talks at the beginning of December, forcing the company to prepare to wind down its business.

Mike Ashley had already made an offer for Debenhams shortly after it entered administration in April, but his £125 million bid was rejected as too low, and JD Sports was left as the sole bidder.

Frasers Group said in its Monday statement that, while it hopes that a rescue can be pulled off, “time is short and the position is further complicated by the recent administration of the Arcadia Group, Debenhams' biggest concession holder.”

“There is no certainty that any transaction will take place, particularly if discussions cannot be concluded swiftly,” it said.

While Frasers Group did not offer details of its potential offer, the Sunday Times speculated that the bid could value the chain at up to £200 million.

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Debenhams currently operates 444 stores in the UK and 22 overseas and employs around 13,000 people, 9,294 of whom are currently on furlough. These stores are continuing to operate as the company winds down its business, with the aim of closing once stocks are cleared.

Frasers Group shares fell 2% in early Monday trading following its announcement.

High street fashion chain Bonmarché has entered administration, following on the heels of Arcadia and Debenhams on Monday and Tuesday. The chain operates 225 stores in the UK and employs around 1,500 staff.

Administrators said that the shops would continue to trade until further notice, adding that no redundancies or closures have yet been scheduled as the business looks for a buyer.

“Bonmarché remains an attractive brand with a loyal customer base,” said joint administrator Damian Webb of RSM Restructuring Advisory LLP, which was appointed on 30 November. “It is our intention to continue to trade whilst working closely with management to explore the options for the business.”

This marks the second time in a year that Bonmarché has entered administration, the first having come in October 2019. The chain was owned by retail tycoon Philip Day, whose other chains – Edinburgh Woollen Mill, Peacocks and Pondem Home stores – also collapsed into administration in early November.

Around 70,000 British retail jobs have been lost so far this year, according to the Centre for Economic and Business Research, and around 15,800 stores have closed. A good deal of this has been sparked by the COVID-19 pandemic and lockdown measures reducing customer footfall in city centres; the British Retail Consortium estimates that the month-long lockdown in England from 2 November to 2 December cost businesses around £2 billion in lost sales.

In Bonmarché’s case, however, troubles began before the global health crisis erupted. Its declining profitability has been linked to rising business rates and a general consumer shift towards online shopping.

UK high street mainstay Arcadia – owner of Topshop, Miss Selfridge, Dorothy Perkins and other major brands – entered administration on Monday.

Arcadia was the biggest concession operator in Debenhams, which is currently in administration. Shortly after the announcement of the firm’s collapse, JD Sports – the last remaining bidder for Debenhams – pulled out of talks despite having been close to securing a deal as recently as the end of last week.

Debenhams will now be wound down. It currently operates 124 UK stores and has cut 6,5000 jobs since May; the remaining 12,000 jobs are now at risk.

Both retailers have been hit hard by the COVID-19 pandemic and a loss in customer footfall in city centres.

Arcadia’s collapse had been expected after the chain failed to secure a rescue loan of £30 million. It operates 444 stores in the UK and 22 internationally, and currently has 9,294 employees on furlough. The company’s collapse puts a total of 13,000 jobs at risk.

Arcadia has hired administrators from Deloitte and announced that its stores will continue to trade as options are considered. All orders that were made over the Black Friday weekend will also be honoured.

“We will be rapidly seeking expressions of interest and expect to identify one or more buyers to ensure the future success of the businesses,” said Deloitte joint administrator Matt Smith.

FRP Advisory’s Geoff Rowley, a joint administrator to Debenhams, said that administrators “deeply regret” the decision to close the company, which was forced by current business circumstances.

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“All reasonable steps were taken to complete a transaction that would secure the future of Debenhams,” he said. “However, the economic landscape is extremely challenging and, coupled with the uncertainty facing the UK retail industry, a viable deal could not be reached.”

Debenhams will continue to trade to clear current and contracted stock, then close.

Arcadia, the UK-based retail group owned by billionaire Sir Philip Green, is set to enter administration imminently, according to the BBC.

Questions over the future of the retail empire were raised on Friday as it emerged that Arcadia had failed to secure a £30 million loan from potential lenders. A spokesperson said at the time that senior leadership were “working on a number of contingency options to secure the future of the group’s brands”.

Rival retail company Frasers Group, owned by billionaire Mike Ashley, said that it had offered Arcadia a £50 million loan to save it from collapsing and was “awaiting a substantive response”. Sources among Arcadia’s senior staff told the BBC they do not expect a last-minute rescue deal.

Arcadia owns several major high street retailers and brands including Topshop, Miss Selfridge, Dorothy Perkins, Wallis and Evans. It has struggled in recent years with a shift in consumer activity from city-centre businesses to online retail, and has acknowledged that the COVID-19 pandemic in 2020 had “a material impact on trading” across its brands.

The retail group operates over 500 stores across the UK and employs around 14,500 people, whose jobs will be at risk should the company enter administration.

Shares in some of Arcadia’s rivals rose on Monday in response to news of the company’s probable insolvency. Next gained 2.8% on forecasts of weakened competition on the high street, and JD Sports rose 6.5% on predictions that it may choose to drop its proposed purchase of Debenhans.

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Online fashion retailer Boohoo, which may be interested in buying Arcadia-owned brands such as Topshop, gained 5.5%.

Frasers Group on Monday also said it “would be interested in participating in any sale process” of Arcadia’s brands should they be sold off.

Virgin Australia confirmed on Tuesday that it has entered voluntary administration, putting 15,000 jobs at risk.

In a statement, the company pledged to continue its scheduled flights that are “helping to transport essential workers, maintain important freight corridors, and transport Australians home.” Travel credits will also remain valid, the statement continued.

The airline’s board of directors has appointed Deloitte’s Vaughan Strawbridge, Sal Algeri, John Greig and Richard Hughes as voluntary administrators.

With 80% of its workforce already stood down, Strawbridge said that there were “no plans to make any redundancies.

Virgin Australia’s slump marks the first major airline in the Australasia region to enter administration as a result of the COVID-19 pandemic and the ensuing quarantine measures across many countries.

The news has come only days after Virgin Group founder Sir Richard Branson published an open letter to Virgin’s 70,000 employees in which he warned of the consequences of the airline’s potential collapse.

If Virgin Australia disappears, Qantas would effectively have a monopoly of the Australian skies,” the tycoon wrote. “We all know what that would lead to.”

Despite its requests to the Australian government, Virgin Australia was not issued the $1.4 billion emergency loan that it sought.

Virgin Australia’s difficulties mirror those faced by other major airlines around the globe, which are struggling to cope with increased travel restrictions and a dramatic fall in demand amid the COVID-19 crisis. UK-based airline Flybe also went into administration early in March as the pandemic exacerbated its existing financial concerns.

As Debenhams becomes the latest casualty of the failing British high-street, Neil Clothier, Head of Negotiations at global sales and negotiation skills development company, Huthwaite International, which over the past 30 years has trained senior negotiation professionals across the globe, examines how businessman Mike Ashley has approached the situation. Has his aggressive approach irreparably damaged his chance of a successful takeover, or does it show his passion for the brand and its stakeholders?

Ashley’s negotiation techniques

With the announcement of Debenhams’ struggle to turn a profit and pay back any proportion of its mounting debt, Mike Ashley – on paper at least – should have been a favourite to take over the running of the department store chain, rescuing it from the brink of collapse. However, unfortunately for Mr Ashley and his now worthless assets, the Debenhams lenders have taken a different tact.

For Mike Ashley, it could be that his reputation preceded him, and ultimately thwarted his efforts. In business, as in life, a reputation for a heavy-handed approach, a penchant for taking risks, and a very narrow approach to negotiation can leave our peers feeling wary.

Over the past few years, we have seen Ashley adopt a particularly aggressive approach to his negotiations time and time again, with a ‘my way or the highway’ attitude. This technique is well known throughout the world of business, and indeed politics, often referred to as the ‘mad man’ technique, an approach used by some of the most powerful people in the world – namely Presidents Trump and Nixon among others. Its characteristics include emphasising an initial stance – often extremely bold or aggressive – which will then help pave way for a lesser, but still related, demand. It also makes one’s opponents think that the negotiator is unpredictable and willing to do anything to get their way – which may even mean pulling out of the deal altogether.

In a sensitive negotiation environment such as this, a more nuanced approach is often needed. In business negotiations, compromise is key – an effective outcome would result in a win-win for both parties involved, but this relies heavily on both parties being willing to negotiate in the first place.

However, while it’s a risky approach, it does work on occasion. In this case, it’s likely Mr Ashley headed into these negotiations with a bold stance because he quite understandably wanted to protect hundreds of jobs and shareholder assets. However, this display of passion was not well received and has led to the Debenhams lenders steamrolling in and wiping his offer off the table – which has certainly been a source of contention for many.

In a sensitive negotiation environment such as this, a more nuanced approach is often needed. In business negotiations, compromise is key – an effective outcome would result in a win-win for both parties involved, but this relies heavily on both parties being willing to negotiate in the first place. With Mike Ashley wanting to do things his own way, and making that very clear, and the Debenhams lenders ultimately in the position of power – potentially possessing negative preconceptions of what entering into business with him would look like – it doesn’t leave Mr Ashley with much of a leg to stand on, unless he’s willing to make serious concessions to the offer he’s put forward or can put forward a far more persuasive case.

Reversing Debenhams’ decision

Negotiations are about compromise for both parties and focusing the commentary on what is mutually beneficial for all key stakeholders involved. In the case of Debenhams entering into administration, Mike Ashley must look to emphasise that it’s not just his own personal investment at risk, but that of other shareholders, lenders, and the jobs of thousands of employees and impact on contractors too. This case, if put forward in the right way, should ultimately align with Debenhams’ intentions.

In the case of Debenhams entering into administration, Mike Ashley must look to emphasise that it’s not just his own personal investment at risk, but that of other shareholders, lenders, and the jobs of thousands of employees and impact on contractors too.

It is vital that negotiators in this type of sensitive situation steer clear of harsh language and rash behaviour, and instead take a much more thoughtful approach, remaining open and flexible in order to create the positive climate needed for a successful negotiation. This is never more important than in the final stages of a negotiation process, or indeed in this case when Mike Ashley will be looking to persuade parties to reopen talks. It means ensuring that both parties are willing to head back to basics and reassess the ideal outcome for both sides and adjusting the tone of his discourse accordingly, and this could prove to be a far better strategy yielding greater success than the mad man approach.

It will be interesting to see the final outcome of the Debenhams takeover, and whether Mike Ashley does indeed get his way. However, what’s concerning is that he is already falling into the habit of ‘dirty negotiation tricks’ – often a last resort – which are designed to deliberately irritate the opposition and provoke them into action. In this case, we see rash public outbursts, a controversial post-announcement statement expressing his opinion that the Debenhams deal was simply ‘a long-planned theft’ and his new threat of legal action. These, of course, will completely close off the chance of any future productive dialogue, so it would make sense for Ashley to change tact if he wants any further progress. In some instances of negotiation, putting ego or frustration aside and recognising and respecting opponent power can result in the best outcomes

 

Website: www.huthwaiteinternational.com

If you want to hear about how Huthwaite International can help your team increase negotiation skills and business revenue for your company, contact enquiries@huthwaiteinternational.co.uk

 

 

Finance Monthly delves into the potential impact of an ‘Amazon tax’ and the alternative solutions that can help the struggling British bricks-and-mortar retailers.  

 

With a series of high-profile collapses and CVAs, including the recent turbulences that House of Fraser is faced with, Britain has seen its fair share of high-street horror stories in 2018. Stores like Toys R Us UK, Maplin and Mothercare are all facing extinction, whilst online retailers such as Amazon are stronger than ever, cashing in $2.5bn per quarter and paying less and less corporation tax with Amazon’s UK tax bill falling about 40% in 2017, and it paying just £4.6 million ($5.6 million). In times like these, the UK retail industry has naturally called on the Government to review its outdated corporation tax system and take action to help the struggling high street. Chancellor Philip Hammond has in turn announced that he is considering a special retail tax on online business, dubbed the ‘Amazon tax’, in order to establish a “level-playing field” for online retailers and high-street shops. But is a new tax really the solution that will balance the market out? Will it be the solution that traditional trade needs? 

Is Amazon’s Existence the Biggest Problem?

Consumer habits are changing rapidly with the continued growth of online shopping, but the truth is that the extraordinary success of web traders is only one of the aspects to consider when looking for the reasons behind the decline in traditional retail. And even though a hike in the tax that Amazon pays may seem like a necessary and logical step, it will be nothing more than a minor distraction from the bigger issue and something that will mainly benefit the Treasury.

It is worth noting that the UK store chains that have collapsed recently did so due to not having the right products at the right prices, not staying up-to-date with consumer trends, not targeting the right customers or not investing enough in their businesses. Surely, online-only merchants have transformed the trade landscape and the UK tax system needs to be adjusted in order to reflect the current retail dynamics – especially when Amazon’s tax bill for 2017 was only £4.6 million on £2 billion of sales. But is the fact that the web giant is paying such a low amount of tax the reason for the collapse of a number of bricks-and-mortar retailers? I think not.

Moreover, as Bloomberg points out, an internet shopping tax could end up backfiring and hurting the bricks-and-mortar retailers it is intended to help. According to the British Retail Consortium, in 2017, more than 17% of sales were made online. Over half of them were with businesses that also have shops. Thus, retailers such as Next Plc, which has both online and offline businesses, could face “a double tax whammy”.

 

The Real Problem

Driving restrictions around city centres, increased parking charges by local councils and state demands such as minimum wage legislation and Sunday trading laws have had a negative impact on bricks-and-mortar retail. Then there is the main challenge in the face of sky-high business rates which have been the bane of countless entrepreneurs trying to establish a high-street presence. In an article for The Telegraph, Ruth Davidson wrote that the UK retail sector, which makes up 5% of the country’s economy, is paying “25% of all business rates, over £7 billion per year”. One might argue that in order to help bricks-and-mortar retailers and keep British town centres bustling with thriving commerce, politicians could perhaps work towards reducing the financial burden they’re faced with, before punishing web giants for offering an easy and convenient way to shop in this digital era. In order to keep up with their online competitors, traditional stores need to focus on technology innovation and redesigning the experience that the modern-day customer expects. But most importantly, they need the budget to do so and a reduction in business rates for high-street stores could be one way to provide them with some extra cash to invest in technology.

Another thing to consider, as Andrea Felsted suggests, could be raising business rates for offices and warehouses and cutting them for shops. That would “address the disparity between shopfront-heavy retailers and online-only businesses, which rely on distribution centres to serve their customers”.

A potential Amazon tax for all web-only retailers will not help bricks-and-mortar retail to innovate. Surely, it will level the playing field, but apart from that, all we can expect will be a slowdown in online shopping without doing anything to solve the current problems that traditional traders are struggling with.

 

A series of high-profile collapses and CVAs in recent months are clear signs of the challenging conditions currently facing the UK High Street. While many retailers are facing falling sales and increased overheads, it is the stores that fail to adapt to changing consumer habits, such as Toys R Us, which end up paying the price.

By putting a strong business strategy in place to harness the growth potential of e-commerce channels, retailers can mitigate the risks posed by their rising cost base and stay ahead of competitors in this fast-moving industry.

Increased consumer caution, food price inflation and wage stagnation have all contributed to High Street incomes being squeezed. Factors such as the increased National Living Wage and minimum pension contributions, when combined with the introduction of the apprenticeship levy and higher business and property rates mean that many retailers are facing higher overheads than ever before.

The growth of the ‘bricks-to-clicks’ phenomenon has been accelerated by the rise of the ‘on-demand economy’, with consumers less willing to wait to get their hands on goods and more online retailers offering same-day delivery. Developments in technology have also streamlined the online shopping experience, with processes such as returns now easier than ever before. As a result of these changes, it is no surprise that footfall on the High Street is falling, with many shoppers choosing to avoid the crowds and find products at a competitive price online.

With consumer habits changing rapidly, it is essential that retailers build their business models accordingly. Toys R Us is a prime example of a chain which failed to move with the times. As well as relying on large, highly-stocked warehouses, which proved costly to run, it failed to invest in the development of an effective online sales channel with expedited shipping options. Securing access to customer data, via methods such as targeted marketing, will allow retail businesses to adapt quickly to new trends before they are able to have a negative impact on sales.

A number of retailers, including Mothercare, have recently announced an intention to secure a company voluntary arrangement (CVA), which could allow them to restructure their finances and agree voluntary repayment schemes with creditors on a one-to-one basis. Helping the business to continue trading and the existing management team to retain control during negotiations with creditors, this route is often viewed as a more attractive option than pre-pack and other types of administration. However, large numbers of empty stores could have the effect of driving more consumers online, away from the High Street, as well as increasing the likelihood that local councils will try to raise business rates to account for the potential shortfall in payments.

Taking action at an early stage to negotiate shorter leases with landlords could enable retailers to cut costs. Additionally, allowing companies to take advantage of the most profitable times in the retail calendar and hire staff only when needed, pop-up stores could reduce costs and increase flexibility.

Consumers are increasingly treating bricks-and-mortar stores as ‘showrooms’, allowing products to be viewed first-hand before finding them online. With this in mind, retailers should employ a joined-up approach, with on and offline sales channels. If businesses are going to encourage repeat business and meet consumer expectations in the future, simply offering a website is no longer enough. It must complement or even enhance the in-store experience, whilst reflecting the brand identity and being quick and easy to navigate. For example, we may see more customers venturing into stores for product advice, supporting the overall decision-making process, before carrying out their transactions online.

As e-commerce delivery slots become shorter and shorter, it is increasingly important for High Street retailers to have a strong logistics network in place, especially around Christmas and other key times in the retail calendar. Locating reliable local suppliers could also help to ensure supply chain agility, facilitating short lead times whilst allowing stores to vary their purchases depending on what is selling well.

While there is no doubt that these are challenging times for retailers, physical stores will continue to play an important role as part of the consumer buying process. For this reason, the High Street is unlikely to disappear completely. By heeding shifting consumer habits and adapting their business model accordingly, retailers can stay ahead of the curve and secure their position in the High Street for many years to come.

 

Trump administration recently announced plans to expand offshore oil drilling in US waters, threatening recreation, tourism, fishing and other coastal industries, which provide more than 1.4 million jobs and $95 billion GDP along the Atlantic coast alone. The executive order directs the Interior Department to develop a new five-year oil and gas leasing program to consider new areas for offshore drilling. The order also blocks the creation of new national marine sanctuaries and orders a review of all existing sanctuaries and marine monuments designated or expanded in the past ten years.

"Our ocean, waves and beaches are vital recreational, economic and ecological treasures that would be polluted by an increase in offshore oil drilling, regardless of whether or not there is a spill," said Dr. Chad Nelsen, CEO of the Surfrider Foundation. "With today's action, the Trump administration is putting the interests of the oil and gas lobby over the hundreds of communities, thousands of businesses, and millions of citizens who rely on the ocean and coasts for their jobs and livelihoods."

New offshore drilling would threaten thousands of miles of coastline and billions in GDP, for a relatively small amount of oil. Ocean tourism and recreation, worth an estimated $100 billion annually nationwide, provides 12 times the amount of jobs to the US economy, compared to offshore oil production. Even under the best-case scenario, America's offshore oil reserves would provide only about 920 days, or 18 months supply of oil at our current rate of consumption, according to federal agency estimates.

"Tourism drives our local economy, and the approval of offshore drilling poses a huge threat to the livelihood and quality of life in our beach community," said Nicole D.C. Kienlen, Tourism Director of Bradley Beach, New Jersey. "The effects would be devastating on multiple levels."

Even when there are no accidents, offshore oil drilling seriously pollutes our water and food supply at every stage. The ground penetration, the drilling, the rigs, and the transportation tankers all release toxic chemicals and leaked oil. The standard process of drilling releases thousands of gallons of polluted water into the ocean. High concentrations of metals have been found around drilling platforms in the Gulf of Mexico and have been shown to accumulate in fish, mussels and other seafood.

"The Trump administration wants to pour money in to a sinking ship with relatively small return, instead of supporting growth industries like coastal tourism and renewable energy that are adding jobs to our economy," said Pete Stauffer, Environmental Director for the Surfrider Foundation. "We will stand up for what's best for the nation, and our oceans, by fighting new offshore drilling off our coasts."

(Source: Surfrider Foundation)

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