Across consumer, retail, and certain private equity-backed businesses, a familiar pattern is emerging: companies are extending runways, versus overhauling business models. Liability management exercises (LMEs) have become the tool of choice to manage upcoming maturities, but they are masking a deeper issue — the underlying business model no longer matches today’s economic environment, and time alone won’t solve that. Business leaders and stakeholders using LME strategies are merely kicking the can down the road, hoping business conditions change rather than addressing underperformance to course correct and avoid potential distress.

Many of today’s stressed companies continue to rely on strategies that began during the COVID pandemic, when consumer demand was stronger than it is today. Businesses expanded capacity, added costs, and took on leverage based on unsustainable economic conditions. Those capital structures are now approaching maturity, and many are without sufficient cash flow, valuation, or growth to refinance or exit successfully.

While LMEs can provide breathing room for companies and management teams, they are too often used as a substitute for real change, and can cause the same investors, lenders, suppliers, customers, and business models to stay in place.  The number of debt for equity swaps and increases in bankruptcy filings support the inefficiencies of LMEs absent of an adjacent business turnaround. Relying on time and creditor support alone may not be the best strategy, and effective retail and consumer leaders must face and address the operational reality of the company in parallel.

Distress Can Show Up Suddenly: The Danger of Waiting Too Long

In retail and consumer products, companies can quickly move from “managing through” to “distress” with few warning signs. A leadership team might be optimistic and think the company is on a performance improvement path when lenders begin to tighten covenants, suppliers shorten terms, or customers flee from service and execution strain. These are signals that the company and its management team must implement deeper course-corrective measures to avoid distress.

Sustainable recovery requires both short-term stabilization and long-term transformation. Companies should immediately implement short-term liquidity actions such as:

• Inventory optimization
• Cost reductions
• Working capital improvements
• Monetizing excess or underutilized assets

However, long-term success comes from confronting tougher questions:

• Is the operating footprint right-sized for current demand?
• Is capacity aligned with reality, not legacy forecasts?
• Are sales channels diversified, or overly concentrated?
• Does the cost structure reflect how the business performs today?

The answer to some of these may require reshaping the business, not just reshuffling elements of one department. Developing and implementing business model changes benefit greatly from experienced advisors skilled in transforming organizations and their business models.

What Success Looks Like Amid Shifting Consumer Demand

I saw this firsthand working with a CPG food manufacturing company that had expanded capacity and invested heavily during a period of elevated demand, only to find that demand didn’t materialize as expected. The work wasn’t about buying time — it was about objectively assessing and overhauling the business model, right-sizing the footprint, and helping management make informed decisions to align the business with reality. 

We created current state and future state models to assess the possibilities of selling or shutting down parts of the business to help management make data-driven decisions. Our independent perspective coupled with experience navigating distress gave our client the horsepower it needed to move faster, make clearer decisions, and avoid simply extending the problem.

How Outside Perspective Helps RCP Leaders

In the retail and consumer sectors, management teams are balancing daily execution, stakeholder pressure, and uncertainty — all at once. Even when the need for change is clear, there often isn’t enough bandwidth to diagnose issues, model alternatives, and execute transformations simultaneously.

An experienced outside perspective can: 

• Bring objectivity to difficult decisions
• Apply pattern recognition from similar situations
• Provide the analytical and operational horsepower to move quickly

Companies can’t rely on time as the only solution, and a parallel path of extending the runway and overhauling the business model provides the optionality to restructure. This means refinancing becomes possible, capital terms improve, stakeholders regain confidence, and the business shifts from surviving quarter to quarter to rebuilding a sustainable future. Retail and consumer companies that confront reality now — and align their business models to today’s market, not yesterday’s demand — will be far better positioned for what comes next. 

When consumer demand is uncertain, LMEs can certainly buy a company some time. But the question stakeholders must ask is whether management is using time to transform the business — or simply delaying a future reckoning.

 

Riveron partners with the office of the CFO and other stakeholders to address pressing issues and guide organizations to make lasting improvements. Explore more RCP insights here.