Retail Outlook for 2021: Interview Excerpts
In this retail industry outlook, Lauren Leach shared the following highlights in a CBS Detroit Radio: Sunday Edition interview with Alisa Zee in December 2020.
Bankruptcy does not always mean closure. For retailers or restaurants, it may mean a reduction in the number of store locations for businesses seeking to emerge from a Chapter 11 bankruptcy.
The pandemic accelerated trends that were already in place. Retailers must be more open to meeting customer demands by offering products through multiple channels including online orders, brick-and-mortar shopping locations, and hybrid experiences like curbside pickup.
Retail and restaurant trends continue to evolve as consumer expectations change, workers shift to remote or flexible working arrangements, and an increased appreciation for human health and safety continues to rise in relevance.
Retail climate: interview excerpts
Note: all excerpts edited for brevity and clarity.
Looking ahead to 2021, Alisa Zee interviewed Lauren Leach with Conway MacKenzie, part of Riveron, on the Sunday Edition radio program. They discussed retail trends, consumer expectations, and how companies can emerge from a challenging season.
Listen to Part 1
What bankruptcy often means for retailers
To better understand current business trends related to real estate and retail sectors, the interviewer asked Lauren Leach in the second half of the segment, to explain why bankruptcy does not always mean closure, and her response outlines two common bankruptcy scenarios:
Listen to Part 2
Lauren Leach [Part Two, minute 1:26]: The two types of bankruptcies we hear about most frequently are Chapter 7 and Chapter 11. Chapter 7 bankruptcy involves a complete liquidation of the company. If you hear of a retailer that has filed for Chapter 7, its stores will close—they will no longer exist or reopen. More often, though, we hear about a bankruptcy in Chapter 11. That is when there is a reorganization of the company and the debt. That retailer emerges from bankruptcy. A common misconception: let’s take an example: Ascena, the parent company of Ann Taylor filed bankruptcy this year. Is Ann Taylor going out of business? That is not necessarily the case. The parent company did file bankruptcy, so the portfolio companies within it (Ann Taylor and others) will have some store closures. But the plan is, under Chapter 11, for there to be a reorganization of the company, and for it to emerge. Typically, when that happens, a restructuring company like ours, Conway MacKenzie (part of Riveron) will come in, reorganize the company, restructure the debt, and come up with a plan to make the store and the business becomes profitable again. In such cases, there will be an assumption of some of the leases, which means that some of the stores stay open, and some of the stores will have rejected leases, which means they will close.
COVID has accelerated a trend already in place before the pandemic: retailers needing to have multiple channels.
Alisa Zee [Part Two, minute 3:28]: That is good to know. (…through this pandemic, with many retail businesses temporarily closing and similar challenges in the food industry), what do you think we are going to see in 2021 …with the restaurant industry? And what can we as consumers help to keep things building and growing?
LL: The restaurant industry has been hit hard throughout the pandemic, and the wave of restaurant bankruptcies will probably continue. COVID will accelerate that trend of bankruptcies—and shrinking footprints and store counts. It was not uncommon, historically, to see a restaurant open 5,000 to 8,000 square foot locations and have spaces for banquets or events. Those restaurants thinking ahead and planning to meet changing consumer preferences, are going to look at not only shrinking their footprint, but also the number of stores.
… as we return to whatever this new normal looks like, people will be anxious to get out again, and live life. People want to make up for lost time; hopefully they will choose to spend more time in restaurants, travel more, go shopping in the stores, because they haven’t been able to experience that social interaction that we’re all craving. And, hopefully that will really help these restaurants and retailers pick up sales where they had missed out for so long.
Consumer trends and the impact to retail
In the first half of the interview, the discussion details how companies are starting to better embrace consumer trends and ways restaurants and retailers may reemerge from the challenges of the pandemic.
LL [Part One, minute 9:05]: Depending on what you read, there’s been this whole notion for the past 12 to 18 months about this retail apocalypse, assuming everything is going to be sold online. I don’t believe that. I do think there will always be a need for bricks and mortar because many people want an in-person shopping experience. Online sales have increased dramatically. … Curbside orders and Buy Online, Pick Up In Store (BOPIS) have grown by more than 500% during the pandemic …that continues to be an important factor for retailers and for customers. They do want convenient options …Online shopping will continue, but some consumers will want an in-store experience.
AZ …maybe by this time next year, it will be a very different world. But, the increase in online shopping is …here to stay, right?
LL: Definitely. COVID has accelerated a trend already in place before the pandemic: retailers needing to have multiple channels. To service the shopper, retailers must provide the ability to go into a store and pick out what you want and walk out with it …and the ability to buy online and receive shipments quickly. Now everybody expects two-day shipping, thanks to Amazon Prime, right? Now, retailers must provide BOPIS: Buy Online, Pick Up In Store, and offer curbside pickup. We have learned that customers want multiple shopping options: to either buy it online and have it delivered, to go into the store, or to pick up curbside. …Now, the customers have become demanding. And that trend is going to continue post-pandemic.
Pandemic-related retail trends: impact to landlords
The beginning of the interview also included an overview of typical areas of focus for business restructuring and turnaround, and how the current business environment affects retailers and landlords:
AZ: Real Estate has been up, down, and all around: the retail climate, commercial real estate, different work environments. Many…of these changes will remain with us for a short term…maybe long term…what do you do (to guide affected clients)?
LL: To help navigate this climate, we are working on a lot of lease restructuring, lease negotiation, and receivership work for banks and special servicers. We have a national practice where we step in as the court-appointed Receiver and work on distressed assets where there has been a default on a mortgage, especially relevant now for retailers and landlords.