Historic department store chain David Jones enters administration

David Jones has entered administration and receivership for the first time in its 188-year history, threatening thousands of jobs and widespread store closures. The company board voted to appoint voluntary administrators from McGrathNicol, while lenders brought in FTI Consulting as receivers to run the business until it is restructured and sold.

The Breakdown

Financial firm MST Marquee reports that several locations are highly likely to close, including Westfield Parramatta, Warringah Mall, and Carindale in New South Wales. Other spots marked for likely closure include Indooroopilly, Robina, and Sunshine Plaza in Queensland, Westfield Marion in South Australia, Westfield Doncaster, Southland, Carousel, and Booragoon in Victoria, along with Karrinyup in Western Australia. The failure wipes out the investment made by Anchorage Capital and leaves unsecured creditors, such as suppliers and gift voucher holders owed tens of millions of dollars, facing heavy losses.

The Cause

The collapse happened after private equity owners failed to agree with major landlord Scentre Group on rent and store closures. David Jones wanted to shut nine stores inside Scentre shopping centers and trade bank guarantees for equity. Scentre rejected this plan, and David Jones turned down a counter-proposal on Wednesday. Scentre chief executive Elliott Rusanow stated that David Jones had not paid rent since October and was in breach of lease agreements.

Context

Retailers often face severe cash flow pressures when high rent costs meet dropping sales in physical shopping centers. When negotiations between major landlords and tenants break down over lease terms, companies sometimes turn to external administration to restructure their debts and operations.