Journal of
Corporate
Renewal
October
2015
NO LETUP IN SIGHT
for Retailers'
Tough Times
BY MARGARET BOGENRIEF, PARTNER, ACM PARTNERS
retailers—thereby forcing retailers
to adapt to the “fast fashion” model,
as exemplified by Uniqlo and Zara—
but it has also forced the general
retail industry to focus spending
and labor on developing fast-paced,
technology-based advertising,
manufacturing, and distribution.
• Technology. The shift in
technology-based consumer
behavior has also led to a dramatic
increase in e-commerce purchases
at the expense of brick-and-mortar
stores. 7 E-commerce sales were
up 14. 5 percent in Q1 2015 from
Q1 2014, driven by industry leader
Amazon, 8 which topped the list
in 2014 at nearly $79.5 billion. The
top 500 U.S. merchants grew their
combined sales 16. 2 percent, to
$256.3 billion, in 2014. That was
more than six times the growth
rate for all other U.S. retail sales,
including stores, catalogs, and TV
infomercials and other forms of
direct marketing, which increased
2. 4 percent, to nearly $2.9 trillion.
Meanwhile, in-store sales grew by
only 3 percent. Overall, according to
the U.S. Department of Commerce,
the U.S. e-commerce market grew
15. 4 percent to $304.9 billion.
Market Dynamics
To many in the turnaround industry,
it has been evident for some time
that 2015 would be a difficult year for
the retail industry. As early as 2012,
with headlines detailing the distress
at JCPenney, 2 including the retailer’s
refinancing in June 2014; 3 American
Apparel’s4 marketing, leadership,
and financing woes; and GAP Inc.’s5
struggle to occupy the retail niche
between Banana Republic and Old
Navy (including 175 store closures),
retailers across the market spectrum
have appeared to be set for trouble.
The first question when identifying
specific industry distress is always: what
market and sector forces are driving
the crisis? Within the retail industry,
the reasons are as varied and myopic
as retailers themselves and include:
• Consumer Spending Habits. Broadly
speaking, consumer spending
habits have shifted significantly
over the past decade. Millennials, 6
in particular, are altering the retail
landscape by changing the focus
of their spending from apparel to
high-end electronics. Not only
has this resulted in fewer dollars
being spent at traditional apparel
As many in the turnaround and istressed space know, the total number of bankruptcy filings
continues to languish. In Q1 2015,
business bankruptcy filings were down
more than 3 percent from Q4 2014 and
19 percent from Q1 2014.1 In fact, Q1
2015’s filing count continues to mirror
the lowest business bankruptcy total
since 2006, when filings dramatically
increased as the U.S. slid into recession
beginning in December 2007.
The decline in overall business
bankruptcies is more easily
understood when considered
within the context of continuing
low interest rates for business
borrowers that, when combined with
perceived elevated costs associated
with a bankruptcy filing, make the
Chapter 11 option unappealing.
Within this business climate,
however, troubled retailers appear
to be bucking this declining trend.
This article discusses market trends
that are driving more retailers
to distress, what barriers exist to
reorganizing and turning around a
retailer, and why quick and immediate
advisory action is necessary to
rescue a retailer in trouble.