Proactive Restructuring: A Vital Step Towards Retail Recovery

In today's challenging retail landscape, companies are finding it increasingly important to act decisively and restructure their operations before seeking Chapter 11 bankruptcy protection. According to Tony Grant, Senior Managing Director at AG Real Estate Partners, this proactive approach can significantly increase a retailer's chances of attracting rescuers, including potential investment and buyout firms.

In a recent article featured in Chain Store Age Online, Grant emphasized that the environment for retail buyouts has become particularly cautious. Investors and private equity firms are now hesitant to engage with chains that have already entered bankruptcy, as the survival rate post-bankruptcy is alarmingly low. Indeed, Grant points out that the costs associated with Chapter 11 filings have risen substantially, making it a less appealing option for distressed retailers.

Nonetheless, Grant argues that there is still a pathway to financial recovery for retail chains willing to make tough decisions early in the process. "By consolidating operations, closing underperforming stores, and cutting costs as part of an out-of-court workout, distressed retailers can enhance their appeal to potential investors," he explains.

Key Strategies for Successful Out-of-Court Restructuring

To maximize the results of out-of-court restructurings, Grant shares three pivotal strategies that retailers should consider:

1. Make Tough Decisions Early
Grant stresses the importance of acting quickly to make hard choices, citing the numerous downtown retail operators who struggled to remain viable during the COVID-19 pandemic due to their delayed responses to changing market conditions. "The right move was to act immediately to lower occupancy costs, either through renegotiating leases or terminating them," he advises. The reality is that waiting can result in higher financial stakes down the road.

2. Engage in Meaningful Dialogs with Landlords
Once an out-of-court restructuring begins, retailers should initiate conversations with their landlords. These negotiations should be grounded in clear, rational, and transparent discussions regarding the retailer's financial situation. Grant suggests presenting landlords with a comprehensive overview that includes the company’s financial history and relevant market data. This strategy fosters goodwill and encourages landlords to come to the table, potentially leading to more favorable terms.

3. Present a Cohesive Front
Lastly, Grant underscores the importance of projecting a unified, strategic position during negotiations. "Retailers need to avoid giving the impression that they are just 'dialing for dollars,'" he cautions. By demonstrating that they have undertaken a thorough portfolio review and are committed to reducing occupancy costs across multiple locations, retailers can create leverage in their negotiations. This collective effort signals urgency and seriousness to the landlords involved.

Grant's insights underscore that it is still feasible for retailers to navigate out-of-court restructuring amidst the evolving business environment and economic uncertainties. By executing these strategies and reinforcing leadership stability, retailers can enhance their candidates to attract the necessary financing. As Grant concludes, if a route to acquisition or recapitalization through Chapter 11 becomes necessary, a proactive restructuring will attract wider interest from potential investors. "Demonstrating a robust EBITDA and strong leadership during these challenging times can set a retailer apart from its competitors," he affirms.

Conclusion

In summary, retail chains facing financial difficulties have options beyond filing for bankruptcy. By prioritizing proactive restructuring and engaging constructively with landlords and financial players, retail executives can revitalize their operations and improve their appeal to investors. In a field where flexibility and decisiveness are paramount, these strategies could very well pave the way for a successful retail recovery.