Fewer 2nd Chances For Failed Retailers
Since late 2016, the U.S. retail sector has been in the midst of a major upheaval. Business media has been documenting retail bankruptcies and store closings at a rate that would cause some to think that our economy was in recession. Things are not about to slow down either – the retail sector is expected to dominate restructuring activity in 2017. As the conversation turns to distressed retailers, for many chains filing for Chapter 11 protection, bankruptcy is often seen as the end of the line rather than as a fresh start.
Recently, Wet Seal, American Apparel and The Limited have permanently closed, while Eastern Outfitters, Hhgregg and others struggle to avoid a similar fate. Several recent filers were quick “Chapter 22s” and are a reminder that multifaceted operational issues must be addressed quickly and thoroughly if any attempts to rehabilitate a failed retailer are to be successful.
There is a widely held belief that retail Chapter 11 filings more often end in liquidation compared to other industries. We analyzed the data and concluded that there is compelling evidence to support this claim – large retail debtors have liquidated at more than twice the rate of nonretail debtors over the past decade. Why is that?
In this article, Christa Hart and Amir Agam, Senior Managing Directors in the Retail & Consumer Products practice, delve into the latest industry trends and offer their expert analysis on how the industry will need to successfully move forward. These trends should be prompting introspection, assumption testing and earlier engagement to ensure that business strategies are capable of surviving downside scenarios.