Retail Bankruptcies to Continue Amid Changing Market Dynamics
Many retailers must re-look at their business models and make changes to meet the evolving market dynamics or risk going out of business as many retailers have done in 2017 into early 2018. The days of relying on mall traffic and brick-and-mortar store fronts are going the way of the dinosaur.
Amazon with its wide product offerings, efficient and convenient direct-to-customer delivery services and cost- effective distribution channels are making mall shopping obsolete. For brick-and-mortar retailers to survive in this market they must change their business models to offer experiences and specialty products to draw in customers, as well as expand their online shopping services as more and more customers shop online. Many department stores and other retailers that rely on mall shoppers will need to shed debt and make significant investments in online shopping and upgrade their stores to bring in customers.
Many will need to file for bankruptcy to accomplish this as footprints will need to shrink due to closing of non-profitable stores and exiting burdensome property leases. This could also lead to M&A within the sector as companies look to merge to gain economies of scale and combine strengths to be able to compete in the market. As with any change in a market, weaker players with declining sales and heavy debt loads will fall out of the marketplace (i.e. Sears/Kmart), as well as those stores heavily reliant on mall traffic to drive sales.
Stores that sell basic goods such as small appliances, generic clothing lines and major brand goods will find it increasingly difficult to compete with Amazon and Walmart who can underprice them for the same goods.
Retailers will need to look to a similar model as some in the grocery industry have taken to differentiate themselves in order to survive by looking to “private label” branding that cannot be found in other stores and provide an experience that is worth going to the store (i.e. personal shoppers, etc.). Given these factors in the market, it does not appear there will be a slowdown in the number of retail bankruptcies this year.
About the Author:
Mr. Sniezek is a Director in Dacarba LLC's Restructuring practice. He has over 20 years of public accounting, corporate finance and restructuring experience and has provided interim management and advisory services to both public and private companies in the energy, oilfield services, retail, manufacturing and transportation industries. He has significant experience in cash management, preparation and review of financial forecasts, budgets and long-term business plans, integration and transition for mergers and acquisitions, troubled debt restructurings and bankruptcies.