Debenhams falls on report credit insurers putting squeeze on suppliers

Debenhams shares fell to a new low on Monday after it was reported that credit insurers had reduced cover for suppliers to the department store group.

The Sunday Times said Euler Hermes, a leading credit insurer, had tightened the cover it sells Debenhams’ suppliers and that two other insurers had refused to cover some shipments. Suppliers to retailers buy credit insurance to guard against the retailer going out of business before it pays them for deliveries.

The company’s shares, down by two-thirds this year, fell as much as 6% to 13.72p.

Debenhams, which has posted three profit warnings in 2018, responded to the report by saying it had a "healthy" cash position and had a constructive relationship with credit insurers. Analysts said the report made the company’s efforts to strengthen its finances, including selling international operations, more urgent.

Peel Hunt analyst John Stevenson said: "This is a key time for Debenhams in the build up to autumn/winter and Christmas, the peak working capital requirement for the business. Any move to reduce credit insurance ahead of peak will put Debenhams under significant pressure. The potential to dispose of subsidiary department store group Magasin du Nord is likely to be moving towards the top of the agenda."

Withdrawal of credit insurance from suppliers has helped cause the end of many retailers in the past. Without it, suppliers can demand payment upfront or refuse to provide stock, putting further pressure on a troubled retailer.

Liberum analyst Adam Tomlinson said Debenhams’ international business contributes 20% of earnings and is the only part of the group that is growing. "Structural challenges persist and we see the company as a value trap," Tomlinson said.

Debenhams has been squeezed by reduced consumer spending power, specialist competitors, shoppers moving online and rising costs. The company is trying to cut costs and revamp its business to attract more shoppers but progress so far is limited.

Independent retail analyst Nick Bubb said: "Debenhams insists that it is in good financial health, but the notably weak share price is telling us that something is amiss and the Sunday Times story about supplier credit insurance problems has an ominous ring to it."

At 09:29 BST Debenhams shares were down 3.8% to 14.15p.