Debenhams is under fresh pressure after it emerged credit insurers have reduced cover for suppliers to the department store chain in the latest sign of the challenges facing Britain’s high streets.
Suppliers use credit insurance to protect themselves from the risk of not being paid. Euler Hermes, a leading insurer, is among those to have reduced cover.
It comes a month after Debenhams issued its third profits warning this year, saying full-year profits would be well below City expectations, and announced plans to sell Magasin du Nord, the Danish department store, in a bid to strengthen its finances.
Credit insurers Coface and Atradius have also reduced coverage for new shipments to Debenhams in recent days, according to a report by the Sunday Times. A withdrawal or reduction in cover tends to mean that suppliers demand payment upfront, putting increased strain on a retailer’s working capital.
However, credit insurers have not cut cover for Debenhams completely and a spokesman for the retailer said it was still in a “healthy” cash position.
He said: “Debenhams has a healthy balance sheet and cash position. All the credit insurers continue to provide cover to our suppliers and we maintain a constructive relationship with them.
“It is well-documented that market conditions are challenging, but Debenhams continues to be profitable, has a clear strategy in place and is taking decisive actions to strengthen the business.”
Debenhams has 176 stores in the UK and employs about 27,000 people. It expects annual profits this year to be between £35m and £40m, compared to more than £150m five years ago.
Rival department store chain House of Fraser announced last month that it would close 31 of its 59 stores in the UK, including its flagship shop on London’s Oxford Street, with the loss of about 6,000 jobs.
The John Lewis Partnership has warned it will make no profit in the first six months of this year and is to close five Waitrose stores as tough trading on the high street takes its toll.
An unnamed source quoted by the Sunday Times said the clothing market was being trashed by “one desperate player” – House of Fraser – heavily discounting prices and forcing others to follow in order to compete.
Last week, administrators in charge of finding a buyer for the ailing Poundworld chain announced the closure of more than 100 stores with the loss of more than 1,000 jobs. The discount chain collapsed into administration in June after rescue talks with potential buyers failed.
Richard Hyman, an independent retail analyst and advisor, said the decision by credit insurers to reduce cover for Debenhams suppliers was “a massive warning light”.
“I regard credit insurance reduction as a very significant warning signal. They are not dong it for laughs, they are doing it because of how the risk is unfolding. It suggests a change in that risk and a deterioration in the underlying trading performance.”
Euler Hermes declined to comment and Coface and Atradius did not respond.