The Retail Apocalypse

The retail apocalypse is real and is coming to a high street near you!

Our Virtual Series publications bring together a number of the network’s members to discuss a different practice area-related topic. The participants share their expertise and offer a unique perspective from the jurisdiction they operate in.

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The retail apocalypse is real and is coming to a high street near you, although the chances are it has already shown its face. The days of bricks and mortar retailing are rapidly coming to a close, according to most industry analysts, as the world enters an internet age where only the most innovative survive.

The numbers are terrifying. A recent report into the US retail sector by investment firm UBS, suggests that US retailers have closed more than 15,000 stores since 2017, including 1,470 Radio Shack outlets, 735 Toys R Us shops and 700 GNC stores. The report estimates that a further 75,000 stores selling clothing, electronics and furniture will close by 2026. By then, it forecasts that 25 per cent of all US retail sales will be made online. The plight of Sears Holdings starkly illustrates this issue. At its peak in 2006, the firm had 3,843 Kmart and Sears stores across the United States and Canada, employing 312,000 staff. Following a long, complex Chapter 11 bankruptcy process in 2018, there are now just 425 stores in the US, employing approximately 45,000 staff.

The UBS report goes on to say that the average US household spent USD5,200 online in 2018, up almost 50 per cent from five years ago. This is not just a phenomenon in the United States. In this report, we discuss the plight of the diamond industry in Belgium, the home furnishings sector in Canada and some high profile administrations in the United Kingdom. The major reason for the apocalypse is the inability of the traditional retail model to cope with online retail. Online behemoths like Amazon have very quickly changed the rules around cost, inventory and delivery making it extremely difficult for incumbent businesses to compete. Those that survive, have developed their own powerful online sales platforms, embraced social media marketing and created better user experiences in physical stores.

For those that haven’t adapted, the complexities inherent in falling into financial distress are significant, particularly for large multi-brand retailers. Debt may need to be restructured, leases renegotiated with landlords and stores consolidated. The knock-on effects for staff, pension funds, suppliers and creditors are also huge, requiring careful handling.

In the following report we hear about the global collapse of Toys R US and the distress caused to landlords, when hundreds of outlets ceased trading at the same time. We also hear about the Arcadia group in the UK and the Company Voluntary Arrangement (CVA) schemes which have resulted in steep reductions in rent for landlords.

Retailers experiencing the ill-effects of the apocalypse require the help of trusted advisors to navigate through the complexities of insolvency, if they are to avoid liquidation. Restructuring on many levels is crucial, from business models to debt repayments to save these businesses from oblivion.

Read on for the views of six IR Global insolvency experts from across the world, acting for retail businesses in their respective jurisdictions.