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Dealing with Disruptive Change

Last year more than 20 national retail chains filed for bankruptcy protection, continuing a trend that many observers attribute to the rise of e-commerce and the unprecedented growth of Amazon. While the impact of those forces certainly cannot be denied, the history of retail is also one marked by disruptive change, as new forms of retailing evolve and technology places increasing power in the hands of consumers.

I believe changes over the last decade have centered around speed—among them the speed to market in sourcing, the speed with which retailers can communicate with consumers, and the speed with which consumers process information and expect to be served. Increasingly, this has put pressure on retailers to respond with alacrity in all aspects of their business, and those that are unable to respond and change their business model quickly enough to meet consumers’ heightened expectations are doomed to fail.

Speed and the ability to plan ahead as a means to maximize value for distressed retailers is a common thread in this month’s issue, and our talented cadre of authors have given readers some great insights on how to successfully navigate through restructurings in this environment.

Richelle Kalnit and Ben Kaplan of Hilco Streambank strongly advocate a proactive approach when navigating the terrain of bankruptcy. They describe how focusing on the brand early on is the key to preserving meaningful enterprise value. They also discuss how the difference between fair market value, orderly liquidation value, and forced liquidation value of a retailer’s intellectual property can be the breaking point between liquidation and a successful restructuring.

Jordan Myers of Alston & Bird LLP provides an update on market trends and recent deal terms in retail debtor-in-possession (DIP) financing. The trend toward roll-ups in recent major cases is discussed, as well as trends in the structure of DIP facilities.

Jon Graub of A&G Realty Partners discusses how maximizing the value of real estate portfolios is a critical element of successfully managing through the disruption retailers are now confronting. He provides a wide-ranging overview not only of the traditional specialty and department store arena, but also of how these considerations are now affecting the grocery, education, and healthcare industries.

Brent Kugman of Kugman Partners addresses value preservation in a distressed sale process and gives us a bird’s eye view of how turnaround professionals who understand the nuances of retail turnarounds can optimize the proceeds. He illustrates this in the case of a regional furniture retailer, where professionals used a methodical and analytical approach to financial and operational planning coupled with communication with stakeholders to achieve results.

Finally, S. Gregory Hays of Hays Financial Consulting and Ben Nicholson of Fortis Business Advisors discuss the challenges facing smaller retailers that often crash and burn in Chapter 7 when other options exist. They review key challenges retailers and their creditors face and suggest a controlled, coordinated approach to maximize recoveries from a planned liquidation.

Michael Appel, Appel Associates LLC

Michael Appel

Appel Associates LLC

Michael Appel is president of Appel Associates LLC, an advisory firm to retail and consumer goods companies, private equity funds, and lender groups. He currently is chairman of the board and interim CEO of rue21 and has served as interim CEO, COO, and CRO for retailers that include Laura Ashley, Baccarat, and Wilkes Bashford. Appel, a past recipient of TMA’s Large Company Turnaround of the Year Award, is also on the advisory board of the Fashion Institute of Technology’s Global Fashion Management master’s program.

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