Credit insurers have reduced the cover offered to suppliers of the department store Debenhams.
The move follows the profit warning issued by the high street chain last month, the third of its kind this year. The latest warning stated that full-year profits would be considerably lower than City expectations and set in motion a plan to strengthen the chain’s financial position with the sale of a Danish department store it presently owns.
The cut in cover for new shipments to the high street chain is likely to see suppliers demanding payment in advance, placing further pressure on Debenhams.
Credit insurance is taken out by a business’s supplier in order to protect against the risk of not being paid. If the credit insurer sees the business as a risk it will either reduce the coverage offered or refuse to underwrite the sale altogether.
The latest blow to Debenhams’ efforts to set itself back on an even keel is part of a widespread trend currently affecting high street retailers.
Suppliers to other shops such as New Look, Mothercare, The Original factory Shop and House of Fraser are all having difficulty getting insurance cover.
One high street supplier said: “One of the biggest issues we are facing is credit and finance. Retailers are extending payment terms up to 120 days and insurance companies are pulling the plug.”
Despite the reduction in credit insurance, Debenhams remains optimistic. A spokesperson for the retailer 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.”
Commenting on the latest development in the UK’s troubled high streets, an independent retail analyst and advisor said: “I regard credit insurance reduction as a very significant warning signal. They are not doing 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.”
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