Members of the public engage in late-night shopping at Westfield Shopping Centre Stratford in London, England. Picture: ISTOCK
Members of the public engage in late-night shopping at Westfield Shopping Centre Stratford in London, England. Picture: ISTOCK

London — After a year to forget for British retailers, investors are betting some of the UK’s major chains now face a make-or-break holiday shopping season.

Among those with the most at stake are department-store operators Debenhams and House of Fraser, as well as fashion retailer New Look Retail Group, owned by embattled billionaire Christo Wiese. Despite Black Friday promotions having been spread over two weeks in November, all three retailers are among the few still discounting by as much as 50%.

There was widespread snowfall across the UK during the weekend of December 9-10, causing a 9.1% drop in the number of shoppers at British retail destinations, according to researcher Springboard, leaving retailers hoping for a glut of pent-up demand to materialise before Christmas.

That’s adding to the strain wrought by soaring labour and sourcing costs exacerbated by the Brexit-induced weakness of the pound, as well as a squeeze on Britons’ disposable incomes. In November, Next CEO Simon Wolfson said consumer behaviour was subdued and he did not expect that trend to change over the peak shopping season.

Then there is the rise of e-commerce, which is sucking demand away from physical shops and leaving them struggling to adapt. Such concerns helped to prompt Unibail-Rodamco’s $15.8bn acquisition of shopping-centre operator Westfield.

"Historically, Christmas trading has kept the wolf from the door for a lot of struggling retailers, but I’m not sure that’s going to be the case this time around," independent analyst Richard Hyman said by phone. "The golden quarter isn’t looking so golden."

The tough conditions have already claimed several victims. Austin Reed, once tailor to Winston Churchill, collapsed in 2016. That was quickly followed by the demise of BHS, which put 11,000 people out of work. This year a clutch of smaller retailers — including fashion chain Jaeger and furniture seller Multiyork — have buckled under the pressure from rising costs and weak demand.


Debenhams, a midmarket department-store chain that traces its roots to an 18th-century London fabric store, isn’t yet under the financial stress of New Look or House of Fraser. But while the business generates cash and net debt is stable, demand is not: like-for-like sales in UK shops have fallen for 10 consecutive years, according to Deutsche Bank estimates. Short-selling of the company’s shares has surged to the highest level since the financial crisis.

"Debenhams has operating profits only just ahead of their rents, rates and utility bills. It’s a race between them and House of Fraser as to who will go down first," according to Crispin Odey, whose hedge fund Odey Asset Management holds a short position worth £21m, equivalent to 5.1% of the company’s outstanding shares. "The real trouble will come in January."

Investec analyst Kate Calvert upgraded Debenhams to a hold rating this week, saying the shares had fallen to a level where a takeover offer was becoming more likely. Sports Direct International founder and CEO Mike Ashley holds a 21% stake in the company.

Spokespersons for Debenhams, House of Fraser and New Look declined to comment for this article.

New Look

In November, Brait — an investment vehicle of billionaire Wiese, who’s also the biggest shareholder in troubled Steinhoff International Holdings — wrote off the value of its £780m investment in value fashion retailer New Look after just two years of ownership. After the departure of New Look CEO Anders Kristiansen in September and an 8.6% decline in comparable sales in the first half, Brait has been trying to stabilise the retailer’s performance.

A tranche of £700m of New Look bonds fell to a record-low 40 pence on the pound on Thursday, according to data compiled by Bloomberg. Its unsecured bonds are quoted at less than 21p on the pound.

The debt was quoted near face value at the beginning of 2017, but losses for creditors are now likely following an "implosion of profitability", according to CreditSights analyst Helen Rodriguez. The accounting scandal at Steinhoff has wiped more than $2bn from Wiese’s wealth and is another unhelpful development for New Look, Rodriguez said.

House of Fraser

Moody’s cut House of Fraser to Caa1, seven levels below investment grade, on December 8. The retailer, which operates 59 department stores across the UK, is in danger of breaching its debt covenants, analysts said. That’s despite a recent cash injection from its Chinese owner, Sanpower Group, to give it enough funds to do business through the holiday season.

Law firm Orrick, which specialises in debt restructuring, listed House of Fraser as among a potential "increased number of insolvencies and restructurings in the retail sector in the near future" in a November report. The retailer’s £175m worth of bonds due in 2020 are quoted at 86p on the pound, near a record-low 81p in June, according to data compiled by Bloomberg.


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