Failure Of Debenhams PLC Case Study
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Background of the company
History, Location and size of the organization
Debenhams Plc is a huge retail chain which has “120 stores in the UK and the Republic of Ireland and another 21 abroad establishment stores”. Other than clothes for ladies', youngsters' and men's, beauty care and products for household; the organization offers administrations such as individual shopping help, services for weddings and the cafe and eateries inside the store to draw the attraction of 15.8 million individuals and consumers. By isolating itself from various types of retailers on account of its most extreme and novel extent of own-bought brands, but this load of items and brands are available at Debenhams alongside in excess of 500 brands (Chapman et al. 2019). Debenhams is located at “10 Brock st. Regent’s place, London NW1 3FG”. The number of individuals working for the organization in the UK's market and the “Republic of Ireland” is 23,300 where the various activities are related and sales generated £2,086.8 in million (previous year). As the organization is planning to open new and fresh stores, the sales, share of market and margin of gross profit are increasing very fast along with 15.75 percent shares of the market in the UK. The 3 essential paths through which Debenhams trade its product are international stores, departmental stores and the internet and all these 3 paths help the organization to increase its sales in the market (Reddy et al. 2018). Debenhams alludes itself as 'England's most loved retail chain' by separating itself from different kinds of retailers because of its maximum and novel scope of own-purchased brands, however all these products and brands are accessible at Debenhams along with more than 500 brands which are international.
Position of the organization related to competitors
The organization has numerous competitors which are giving tough competition to it and these are “John Lewis, Marks & Spencer, House of Fraser, Arcadia and many more”. Over the last 5 year the Debenhams went through lots of ups and downs and due to which the position of the company has slightly fallen in the list. However, companies like Mark & Spencer have experienced a huge growth in their performance in the past period.
However, in 2018, Debenhams experienced a major downfall on its performance due to which the sales of the company were heavily affected for the same year. Now the company is actively looking at its mistake and the financial consideration to resolve the situation and remain profitable once again. Throughout the most recent long term the Debenhams went through bunches of high points and low points and because of which the situation of the organization has somewhat fallen in the rundown (Chiu, Barker, et al. 2020). Notwithstanding, organizations like Mark and Spencer have encountered a colossal development in their presentation in the past period.
After all these emphasis and conditions, an online organization “Boohoo acquired Debenhams plc for £55million” in 2021. This activity led to the closure of leftover stores of the company in 2021 may which also brought the closure of 250 years of one of the best organizations of the British.
According to some analyst, it is stated that the problems of debt also became a major reason on the failure of Debenhams. The financing condition of the company was very poor in past few years and the company was running in debts. In 2005, Debenhams sold 23 shops to company of British which are known for property investment for £ 495 million and after that the company leased it again. The financial issue led to the failure of the company and it removed it from the track of earning. However, took assistance from the local government and started its program of leasing the debt to minimum but again as the organization was dealing with major issues, successfully implementation of pulling the individuals and other companies to sponsorship did not worked well. Therefore once again the debt problem of Debenhams has increased massively once again in the past years.
Non financial impact of the collapse of Debenhams
Each and every organization experiences changes in their reputation and heavy impacts due to the factors of non finance. Debenhams failure has a big effect on the company’s stakeholders such as future and existing investors, suppliers.
Affect of Bankruptcy
Bankruptcy in Debenhams happened due to various reasons such as the massive competition in the market and increasing effect of online selling. The retailers of the organization faced several problems of bankruptcy when the company was facing the problems of debt. However, when Debenhams become bankrupt important activities have been changed in the operations major stakeholders and their performance which are influenced due to the bankruptcy. In this condition, the organization was required to support their stakeholders along with employees in order to assist them in this bankruptcy. Not only the stakeholders but the suppliers along with the investors have the fear of losing their money and finance in this bankruptcy. However, no such implications and steps were been taken by Debenhams in order to ensure their potential stakeholder’s, suppliers and investors.
Stakeholders of the organization
The impact was huge in the past few years and the involvement of stakeholders for the company has decreased to a lower number (Council et al. 2018). But at present the department store has stated that it permitted£40 million assistance from the suppliers and also made the deal of enhancing their own clothes quality. The hopes of Debenhams are more likely to rise because of the investors and suppliers of the company even after its failure. According to the organization, this activity will give one year facility of credit along with the lenders as a means of refinancing for a long period of time. The stakeholders of the company have the threat of losing their share in the company due to the bankruptcy and debt issue occurred in the Debenhams. The organization is effectively seeing its slip-up and the monetary thought to determine the circumstance and stay beneficial indeed. All through the latest long haul the Debenhams went through lots of high focus and depressed spots and on account of which the circumstance of the association has to some degree fallen in the summary (Stolowy, Paugam, et al. 2018). The arrangement comes in spite of the way that Debenhams' monetary challenges are probably going to have crumbled as of late as back up plans have removed credit cover for those offering merchandise to the retail chain and for that reason many investors are involved in the organization.
The Government Issue has also responsible for the downfall of Debenhams where the company failed to match with the rules and regulation of the corporate governance. The director of the organization has paid huge to come back to the track of earning profit but failed to do so and went in more bad conditions of debt even than before. However, some of the rules of corporate governance have been actively adopted by the company but it was not sufficient enough to get back on the track of continuing their earning. Government has certain regulations which need to be followed by each and every firm and with respect to this; Debenhams has also contributed towards it. One of the most essential regulations set by the government is maintaining safety and health which is required to be considered by various kinds of firms. Hence, the effect of corporate governance changed the consideration of the company which was required to meet the expected standards of the regulations. The expectations of Debenhams are bound to rise due to the financial backers and providers of the organization even after its disappointment. As per the association, this action will give one year office of acknowledgement along for the banks as a method for renegotiating for a significant stretch of time (Petryk et al. 2018). The association is visibly seeing its good and the financial idea to decide the situation and stay quite advantageous. The course of action comes notwithstanding the way that Debenhams' money related difficulties are likely going to have disintegrated actually as back up plans have taken out credit cover for those contribution products to the corporate store. Regulation of low wages is the basic and the important regulation which needs to be followed and it also impacted the Debenhams condition.
Chapman, R., 2019. Business performance is driven by successful projects, a guide for board members1.
Chiu, H.Y. and Barker, R., 2020. Examining the Wates Principles for Large Private Companies as a Social Contract for Business-Society Relations. International and Comparative Corporate Law Journal, 14(2).
Council, F.R., 2018. Developments in audit 2018.
Petryk, O., Kurylo, ?., Karmaza, O., Makhinchuk, V. and Martyniuk, O., 2018. Non-financial reporting of companies and the necessity of its confirmation by auditors in Ukraine. Problems and Perspectives in Management, 16(2), pp.385-395.
Reddy, B.V., 2018. The Fat Controller: Slimming Down the Excesses of Controlling Shareholders in UK Listed Companies. Oxford Journal of Legal Studies, 38(4), pp.733-763.
Stolowy, H. and Paugam, L., 2018. The expansion of non-financial reporting: an exploratory study. Accounting and Business Research, 48(5), pp.525-548.