Jeremy Warner's Outlook: Debenhams looks to be in a hole as it heads into downturn loaded up with excess debt

Debenhams was stripped down to the last lightbulb before the hollowed out husk was flogged back to gullible investors

A blip, an aberration, a cock-up by the Office for National Statistics, or just another reminder that the bleak inevitability of lower living standards warned of this week by the Governor of the Bank of England has yet fully to be appreciated by the profligate British shopper?

According to official figures this week, retail sales last month rose at their highest rate in nearly 30 years, apparently oblivious to the credit crunch, rising prices and the fast slowing economy. Yet if this was indeed the case, it hasn't taken long for the gloom to reassert itself.

By yesterday, John Lewis, the department store and supermarket retailer to the middle classes, was reporting a sharp fall in sales for last week, while shares in Debenhams were plummeting on broker suggestions that the company might soon need to refinance itself.

As our story reports, credit insurers are becoming so concerned about the risk of default on the high street that they are either refusing or scaling back cover in supplying to some retailers. Blacks Leisure is the latest company where suppliers have struggled to get cover on pre-existing terms, but it is by no means the only one.

Companies that can't obtain insurance are less likely to supply, and therefore need fewer employees. Slowly but surely, the crunch which began life as a faintly unreal loss of trust between bankers is working its way deep down into the real economy, with rising mortgage rates and now more restrictive credit insurance.

None of this bodes well for the high street. PiperJaffray, the investment bank, is particularly bearish about the outlook for Debenhams, which it reckons is now so squeezed by excessive debt and declining sales that it has few options but to raise additional capital from investors or bankers, even after cutting the final dividend. First the banks, then the housebuilders, and now the retailers. Like a falling row of dominoes, one by one all are being forced to come cap in hand to shareholders.

Debenhams has been an accident waiting to happen ever since being acquired by private equity back in 2003. In repeated recapitalisations, the new owners then stripped the business down to the last lightbulb, before a couple of years ago flogging the hollowed-out husk back to gullible stock market investors. The shares are now worth a quarter of what they were relisted at. The company's previous private equiteers have long since pocketed the spoils and flown the coop, leaving ordinary shareholders and bankers to sort out the mess now that the laws of economics are reasserting themselves.

We've already seen some smaller retailers go to the wall. Eventually there will be a biggie, notwithstanding last month's apparent rebound in high street sales. Every downturn has its corporate casualties. As the tide recedes, the wrecks disguised in the good times by the swirling waters become exposed. A number of masts are already peeping up above the retreating waves.