David Jones enters administration after $10 million lender lifeline

By Amara Osei

David Jones entered voluntary administration after lender Hilco extended a $10 million lifeline, leaving the retailer’s 38-store network and the roles of 6,000 employees under threat. Under appointments by McGrathNicol and FTI Consulting, the 188-year-old business’s physical stores and online store continued trading while the receivers reviewed its financial position.

The board appointed Matthew Hutton, Jason Preston, Shaun Fraser and Jacinta Nielsen of McGrathNicol as voluntary administrators. Hilco appointed Joanne Dunn, David McGrath and Christopher Hill of FTI Consulting as receivers and managers. McGrathNicol’s administrators are seeking offers to buy or recapitalise the operation, while FTI Consulting will manage the trading business and the review.

The Australian Financial Review reported that David Jones’ leadership informed staff of the administration that morning, after weeks of speculation about the retailer’s troubled finances. The move put a sale or recapitalisation at the centre of the next phase, while receivers began their review of the retailer’s finances.

What happens to David Jones’ stores and staff?

David Jones’ physical stores and online store continued trading as the receivers reviewed the factors leading to the retailer’s current position. The decision threatens 38 stores nationwide and the roles of 6,000 employees, from shop floors to corporate offices. The administration also raises the prospect of store closures before the vital Christmas shopping season.

Receivers intend to trade the business while they examine its financial circumstances. McGrathNicol’s administrators are seeking offers to buy or recapitalise the operation. The search will determine whether the store network stays intact, how many of the 6,000 roles survive and who provides the capital for a reset.

Chief executive Erica Berchtold thanked customers, staff and suppliers for supporting the “iconic” retailer through its latest hardship. She said: “We have a well-developed plan on how to reset the business for the future and will be working with the administrators, the receivers and our secured lender as we continue to pursue that reset of the business.”

David Jones continued trading. The joint McGrathNicol and FTI Consulting statement did not identify a buyer, quantify the reset or set a timetable for store decisions. Those omissions matter as Christmas approaches and the prospect of store closures weighs on the trading plan.

Why did David Jones enter administration?

Christopher Hill of FTI Consulting said: “We understand the current retail trading environment, rising costs, a significant and outdated retail footprint, and supply chain challenges have led to this point.” The account covered trading conditions, cost pressure, an outdated property footprint and supply-chain execution.

He added: “Voluntary administration and receivership provides breathing space and an opportunity to restructure the business. We will manage this process carefully, mindful of the impact on some stakeholders but also recognising the need for difficult decisions.” FTI Consulting’s appointment therefore combines continued trading with responsibility for difficult decisions affecting stakeholders.

What did the landlord dispute reveal?

Scentre Group confirmed that David Jones had not paid rent since September. The property company serves as David Jones’ landlord in 17 Westfield shopping centres. Its disclosure came closely before the administration and adds an unresolved obligation to the retailer’s reset.

Anchorage Capital Partners, David Jones’ private equity owner, had worked to broker a new deal with Scentre Group. Scentre Group chief executive Elliott Rusanow claimed that Anchorage Capital Partners rejected an arrangement that would have allowed the long-running retailer to continue trading.

SmartCompany said it had contacted David Jones, McGrathNicol and FTI Consulting for further comment. Any rescue now must address the rent arrears, the operating reset Berchtold described and the difficult decisions Hill anticipated. The immediate test is whether a buyer or recapitalisation can preserve the 38-store network and 6,000 roles before Christmas.