The Weston family, known for their ownership of prestigious department stores including Selfridges, Brown Thomas, Arnotts, and De Bijenkorf, may find themselves providing financial support to their European department stores business. This comes as a result of a significant decline in tourist visits and forced closures of stores, coupled with the end of tax-free shopping for tourists in the UK.

SHEL Holdings Europe, the parent company of the department stores operator, recently released its accounts for the year ending February 2020. While there was a slight increase in revenue from £1.452 billion to £1.522 billion, pre-tax profit plummeted from £103.3 million to £37.8 million, and net profit declined from £82.2 million to £31.1 million. However, EBITDA did see a rise from £206 million to £299 million.

One particular concern is the potential breach of the company’s UK banking covenants due to ongoing COVID-19 restrictions. The filing acknowledged a “severe but plausible” scenario in which the covenants may not be met. In response to this possibility, Wittington Investments, the ultimate parent company controlled by the Weston family, has committed to supporting the business if renegotiation of the covenants proves to be unsuccessful.

While the company remains confident in its ability to renegotiate the covenants, it acknowledges the challenging environment it is currently operating in. Alongside the impact of the pandemic, the removal of the UK’s VAT Retail Export Scheme has also posed significant challenges for the business. This scheme allowed tourists to claim VAT refunds on luxury purchases, but its removal means that tourists will no longer have this option unless they choose to have the items shipped home. Retailers, including Selfridges, have expressed concerns that this change will decrease the appeal of the UK as a shopping destination for tourists. On the other hand, the government believes it will increase VAT revenue, while retailers argue that transactions will move to other cities such as Paris and Milan, potentially resulting in job losses in the UK.

Given the multitude of challenges it is currently facing, the Weston family might need to inject funds into its department stores business to ensure its survival and future success. While there is hope within the company that it will be able to navigate these difficulties, it is undeniable that the luxury retail sector is gearing up for tough times ahead.

Useful links:
Financial Times: Weston family considers financial support for European department stores
BBC News: Selfridges’ family considers supportive investment in European stores