Turnaround Management Association Event Wrap-Up: Retail Sector Turnaround Challenges and General Outlook
In April 2016, Duff & Phelps and the TMA hosted a panel discussion on the challenges of the retail industry in the UK market place.
Moderated by Ken Goldsbrough, Managing Director in the Duff & Phelps M&A practice, the panel included Chris Emmott, Investment Director at Hilco Capital, Bea Pearson, Chief Operating Officer at BDTP Advisory Limited, and Phil Duffy, Managing Director in Duff & Phelps' Restructuring practice.
Since the launch of the internet in 1997, we have seen a shift in how retailers can reach and sell to consumers. From email marketing to buying online, retailers have to compete not only on the high street but also fight for digital real estate. ‘Bricks vs clicks’ is not a new term and the panelists discussed the effects they’ve seen it can have on brands, products, pricing, and real estate in the retail industry.
Unsurprisingly, the panel discussed the importance of protecting the brand and getting the right mix of cost, geographies, and use of online media and online channels. It’s proven that having a multichannel operating model can work but it’s important to balance and align investment in the website as well as the stores. Cutting costs like reducing staff numbers will affect the overall customer service, having a long term effect on the reputation of the business, and reducing production costs will reduce the integrity of the product. Phil Duffy, from Duff & Phelps said, “often financial advisors can be perceived to come in and cut costs, however, reducing costs may get you over a certain financial hurdle, but long term it will damage the brand”.
The panel discussed at length the importance of knowing your product, knowing your market, and knowing how they fit together. It was noted specifically in the media industry how changes in technology repeatedly affected the product offering: from vinyl to cassette, to CD, and now to digital files which can be purchased over the web without having to enter a store. Diversifying your product range is important if the offering isn’t keeping up with market demands, but you should always consider the pricing, margins and buying structures. Chris Emmott from Hilco Capital, relayed a story whereby a company was operating a model where unsold products could be traded back to the originator, alas the company changed products to one which didn’t support the same model and unfortunately the company was left in financial strife. Shifting from a product range and pricing structure that you know works is risky and should be mitigated by seeking sound advice.
The question is, if everything is moving to a digital platform, will high streets still exist? Do we still need to invest in retail stores? The conclusion is ultimately yes, for a couple of reasons. Some products simply can’t be online – for example, you can’t get your keys cut online. Some products don’t sell as well online –wedding dresses, light bulbs and cleaning products for instance. Of course, we can and often do use the internet to research price comparisons and can now buy a lot of things online; nonetheless you can’t ignore the power of impulse buying or trying and testing a product in store. Again, the importance of building a trusted brand and products ties into having stores available for consumers to engage with. Location strategy and terms of lease are important. Phil Duffy noted that some retailers are bound to a 35-year lease, which can be very difficult to get out of should that store not be making any money. One way to resolve a store portfolio issue is to use the available methods of CVA or administration, enabling a negotiation with landlords to reduce rents.
In the end, it’s all about understanding your market, once you’ve got that right the rest should follow. As Beanre Pearson from BDTP Advisory said, “believe in yourself and your story, otherwise you won’t be able to sell to your market. Understand your customer, understand the market, and understand what the product means in that space.”
Our Expert Panelists
Co-Head of UK Restructuring and part of the Global Restructuring Advisory practice at Duff & Phelps. He has more than 20 years’ experience in the corporate recovery market and has significant experience advising clients in complex situations, including those with multijurisdictional issues. Phil's sector expertise includes retail, travel, sport and manufacturing. Selected appointments include BHS, USC, and several undisclosed multi-site retailers resulting in the saving of many thousands of jobs as well as protecting stakeholders’ interests. Phil is a Chartered Accountant and a licensed UK Insolvency Practitioner.
Managing Director in the London office at Duff & Phelps in the Mergers and Acquisitions practice, specializing in debt advisory and capital raising. Throughout his career, Ken has developed significant experience in investment banking specializing in corporate lending, leveraged finance, and debt capital markets. He has extensive networks with financial sponsors, banks, funds and corporates. Prior to joining Duff & Phelps, he held senior roles at Greenhill & Co as Head of European Debt Advisory, GE Capital, Barclays and Paribas, where he was Head of UK Corporate Banking and Chairman of the Trustees of the Paribas Limited Pension Fund. He holds an M.A. in modern history from the University of Oxford and is a qualified member of the Chartered Institute of Bankers.
Chief Operating Officer at BDTP Advisory Limited and Former COO of the £122m turnover multi-channel DIY and homewares retailer Robert Dyas. BDTP provides business assessment, operational review and strategy implementation amongst many other offerings. At Robert Dyas Holdings Ltd, she was responsible for devising and delivering a multi-channel retail strategy, developing a strong management structure, re-defining the trading and commercial proposition and helping grow a strong brand profile to increase market share.
Investment Director at Hilco. Chris has worked on some of the largest cross-border restructuring and turnaround projects of recent years, together with numerous crisis management and business stabilization roles. Whilst at Hilco, Chris was involved in numerous high-profile restructuring projects, including MFI, The Pier and Burleigh Pottery. Currently sitting on the boards of Hilco investments including Denby Holdings, Kraus Group and HMV Canada, Chris has extensive expertise across the retail, engineering, automotive and manufacturing sectors.