Stay or Go | Retail Site Selection is Key in Return to Profits | FTI Consulting

Stay or Go? Retail Site Selection is Key in Return to Profits

Financial Institutions

September 14, 2015

The Great Recession, combined with overexpansion in the wake of shifts in consumer buying habits away from brickand- mortar locations, has left many retailers reeling and burdened with an unprofitable retail store network. Declining store revenue and corresponding operating inefficiencies can ripple through a retail company as slower inventory turns and credit constraints quickly drain liquidity when a retailer may need it most.

The ability to reconfigure a retail store network quickly, including location and facility requirements, and turn it into an effective revenue generator and a manageable short- and longterm real estate liability is a key factor for returning a retailer to profitability and rebuilding the balance sheet as part of an out-of-court restructuring or Chapter 11 bankruptcy. 

While the attributes of successful stores may vary across geographic regions, key attributes and success factors will stand out with respect to location, core customers, and merchandising.

While the window of opportunity may be short, especially in a bankruptcy, restructuring presents a dynamic opportunity for a retailer to reconfigure its store network rapidly while positioning it to reach and meet the needs of its core customers and improve operating margins. The corresponding renegotiation, termination, or discharge of leases may provide almost immediate relief from substantial short- and long-term leasehold liabilities while reducing operating expenses.

Arguably, mature retail chains may become complacent, and many mass merchants do not consistently evaluate the financial performance and utility of their retail locations and make “stay or go” decisions as part of their normal course of business. This is because a retailer’s decision to close a number of locations may be perceived as their recognition of a misstep in their marketing strategy and a poor reflection on management in a business that historically prizes market expansion.

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