Restructuring in the retail sector: what does the future hold?
Conclusion
Another possible solution is the ‘pre-pack administration’, where a business is sold in administration as a going concern, immediately upon the administrator being appointed. One of the key benefits of a pre-pack sale is that it minimises disruption to trading employees and customers, and operations can continue. While we expect greater levels of restructuring activity in the sector in the months ahead, there are a number of possible routes for businesses to take. There are many quality management teams in the retail sector, working tirelessly to navigate the ongoing challenges. What they need is continued support in contingency planning. The UK retail industry is world-renowned for its innovation and craftsmanship. With strategic planning, retailers have every chance of delivering growth.
Unfortunately, we expect further distress in the retail sector in the year ahead. The market challenges facing many bricks and mortar chains means that they will face existential challenges over the next year, with pressures mounting as lockdown restrictions continue, and with consumer shopping habits continuing to outpace the ability of larger retailers to react. Further changes to spending habits will undoubtedly continue with reduced overseas travel and continued investment in home DIY. The gap between struggling retailers and those that are performing well will continue to widen. It is important that companies map out potential risks, put in place robust contingency plans, and have the courage and vision to explore options to streamline their business if appropriate. Businesses should focus on conserving cash, find ways to reduce costs and be competitive on price as a priority. The ability to challenge and re-examine every aspect of the business is crucial, and it’s worth noting a simple reduction approach may not always be best. The ability to identify risks, scenario plan and maximise the cash management runway is a key starting point. This is what all management teams are focused on, and they should continue to keep a close eye on operations. Retailers that are not yet advanced in online sales will find developing an online strategy and setting up a robust delivery and click and collect function, a costly and time-consuming exercise, so it’s important to plan for this carefully. It is more important than ever that companies and their advisors explore every avenue to promote the rehabilitation of businesses, whether through solvent rescue financing or through a strategic and rationalised use of restructuring solutions. Raising and refinancing debt can be a key step in unlocking additional funds, and sources of additional funds can include asset- based lenders (ABLs), banks and other institutional lenders. For businesses that are currently facing challenges, options such as CVAs can offer a route to rehabilitate companies while optimising value and outcomes for stakeholders. When used correctly, and in the right circumstances, a CVA can help to rebuild a resilient business model and realign economic interests for investors, employees, customers and suppliers.
There are a number of specific challenges when dealing with the sector, which can make them more complex to successfully restructure. The UK retail industry is world-renowned for its innovation and craftsmanship. With strategic planning, retailers have every chance of delivering growth. Alastair Massey Restructuring Advisory
Restructuring Advisory
Corporate restructuring
Corporate advisory
Contentious insolvency
Phil Reynolds Restructuring Advisory
Solvent restructuring
Notes
* 1 Retail sales in 2020 worst on record, says BRC trade body. (2021). BBC News. [online] 12 Jan. Available at: https://www.bbc.co.uk/news/business-55625246. * 2 Walker, P. (n.d.). A fifth of online retailers fear failure this Christmas. [online] Retail Systems. Available at: https://www.retail-systems.com/rs/Checkoutcom_ Online_Retailer_Survey_Christmas_Concerns.php [Accessed 4 Feb. 2021].
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