On the heels of 5,864 retail store closures in 2018, at least 8,558 additional stores will close in 2019, a number that could climb as high as 12,000. While the media continues to describe this as a “retail apocalypse,” the fact remains that the U.S. still has much more retail square footage per capita than any other country in the world.
The rise of e-commerce and the unprecedented, seemingly unabated growth of Amazon and other online retailers have forced an inevitable rationalization of brick-and-mortar retailers. As I wrote here in June 2018, the history of retail has always been marked by disruptive change, as new forms of retailing evolve and technology places increasing power in the hands of consumers.
Despite the overarching recent upheavals in the retail landscape, brick-and-mortar retail is not dead. Companies that have a defensible business model have survived and flourished, resulting in a Darwinian survival of the fittest, as the strong prosper and the weak fall by the wayside.
The successful restructuring of Things Remembered, for which I served as an independent director, would argue strongly that corporate renewal in the retail sector is indeed possible. If a company has a defensible business proposition and stakeholders and advisors work collaboratively and aggressively, positive results can be achieved in Chapter 11. The Things Remembered restructuring is showcased in this issue, with three advisory firms and one of my fellow independent directors discussing the case from their unique perspectives.
Christopher T. Greco, Spencer A. Winters, and Derek I. Hunter of Kirkland & Ellis, bankruptcy counsel for the company, argue that retailers must act deliberately and early to successfully execute a going concern transaction. They describe how Things Remembered successfully executed a going concern sale by locking up a strategic buyer, incentivizing employees to stay with the company, implementing a flexible sale process, and proceeding through Chapter 11 on an expedited timeline.
Bob Duffy and Brett Witherell of BRG Advisors describe their role as financial advisors in assisting the company to navigate the rough waters that retailers face in Chapter 11. They discuss the key drivers that established a foundation for success for the company as an omnichannel retailer.
James Doak of Miller Buckfire & Co. LLP and Michael Kollender of Stifel, investment bankers to Things Remembered, describe their pivotal role in optimizing a difficult sale process. They posit that smaller retailers with solid customer value propositions can still find success in difficult markets, even with little time to execute a sale process. Despite extraordinary headwinds, the two devised a strategic marketing process to get to a transaction quickly.
Rounding out our case study of Things Remembered, Brent Kugman of Kugman Partners discusses the role of the special committee of independent directors in the case. He describes how the committee provided objective oversight that resulted in streamlined decision making and an expedient, thoughtful process, free from conflicts of interest and made in the best interests of the corporation and its stakeholders.
Alexa Driansky and Asher von Stein of AlixPartners, the global consultancy, focus on how digital natives are reinventing brick-and-mortar stores. They describe a retail revolution in which legacy retailers continue to close stores, while digital natives open physical stores to supplement their online offerings. They argue that the store is not dead but is being reimagined as the hub of a customer-centric model.
Jon Graub of A&G Realty Partners says identifying the strengths and weaknesses of a retailer’s real estate portfolio is a critical part of the planning process before commencing a restructuring. He describes how the data analytics revolution is providing real estate advisors with the tools needed to identify which assets should be retained or sold.
Finally, Loren Trimble of AArete, discusses why it’s never too early to start the turnaround process. He describes telltale signs that suggest companies should be considering a full-blown turnaround initiative and presents examples of both successful and failed turnarounds.