Capital Sources beyond Consumer Spending: Key Considerations for Retail to Thrive in a Challenged Environment

Oct 2020

RETAIL TO CONTINUE TO BE IMPACTED IN A POST-COVID WORLD

In several earlier COVID-19 articles, we addressed a number of topics including how retailers could address COVID-19’s impact on consumer spending, the importance of seamless omni-channel and customer-centric offerings, as well as creative strategies to utilize physical footprints effectively. While select retailers have evolved to meet these challenges, they have mostly been very large, essentials oriented and have substantial access to capital and infrastructure to invest behind their business transformations. Examples include Target’s efficient use of stores as “distribution centers for seamless customer fulfillment” and Wal-Mart’s relentless investment in e-commerce infrastructure and technology to become a credible and thriving competitor vis-à-vis Amazon Prime. Other formats with actual (or perceived) expertise and innovation – think Best Buy, Williams Sonoma, et al – have developed customer-centric models that are also thriving. However, mid-sized and small retailers have not fared nearly as well…

Summary

 

CHALLENGED AND DISTRESSED RETAIL IS A CONTINUING ISSUE

The good news: Consumers are maintaining a strong spending discipline and as various segments of the consumer landscape have ‘opened up’ we have clearly witnessed strong consumer pent-up demand to spend. The bad news: The shift to online; the shift away from malls and the resulting sizeable vacancy rates; the shift of spending to nesting oriented segments; and the migration away from urban environments are all powerful, multi-year trends that will continue to create a challenged environment for less developed and less differentiated retailers. In all of 2019, 17 major retailers filed for bankruptcy and the overall landscape saw approximately 9,800 store closings. During YTD 2020 alone, we have seen bankruptcy filings from 30 major retailers — including well-known brands such as Neiman Marcus, Pier 1 Imports, Brooks Brothers, GNC, and Modell’s Sporting Goods to name a few — and the percentage of store liquidations has been on the rise.

Number of Retail Store Closures in the United States
LINCOLN PERSPECTIVE: CAPITAL RAISE, STRATEGIC PARTNERSHIPS, AND OTHER SOLUTIONS CAN BE A KEY COMPONENT OF SMALL AND MID-SIZED RETAILERS OPPORTUNITY TO THRIVE

In an environment where foot traffic is constrained (either by changing consumer preferences or restrictions enforced by the pandemic), scale is important for operating leverage, and consumers expect a seamless omni-channel experience, free cash flow to invest has been challenging despite the key initiatives required for retailers to thrive. We believe retailers in challenging situations need to be able to invest significantly in their business models for long term success, including a variety of strategies such as:

  • Investing in proprietary brand development
  • Rationalize store base to a productive footprint
  • Thinking differently about the utilization of space
    • Stores can have multiple purposes including as customer distribution points allowing for rapid delivery to customers
    • Integrating differentiated services can create compelling reasons to visit
  • Investing in technology to create long-term, sticky, and profitable customer relationships – retailers need to provide products and services to customers whenever and wherever the customer desires
  • Running a lean, 21st century operating model

All of the above may require either capital or strategic partnership to accomplish in the rapidly evolving landscape and those who do not evolve will be left behind. We are witnessing increasing demand from both private equity investors through a variety of structured capital alternatives as well as strategic investors that are more actively seeking growth and the opportunity to leverage their large infrastructures.


Through its Full-Service Platform, Lincoln Maintains the Capability to Assist Companies Across the Entire Spectrum of Capital Needs

Complementary Advisory Services Graphic

 

Lincoln can help companies and sponsors weather the storm while positioning them for long term success.

 

Contributor

Meet Professionals with Complementary Expertise

David Houser

Managing Director

Chicago

Related Perspectives

A Paws in the March of Premium Pet: Inflationary Pressure Hits European Pet Foods

In an era where many pet owners lavish their fur babies with everything from spa treatments to gourmet meals, the premium pet food industry highlights the strong bond between humans… Read More

Thriving in Motion: Exploring the Latest Outdoor and Sports Industry Trends

As the dust settles from the pandemic-induced frenzy, the active outdoor and sports equipment industries now stand at a fascinating crossroads. What began as a surge in demand—a lifeline for… Read More

Beauty Industry Insights: A Compilation of Recent Press Recognitions

Coming off a slower 2023, beauty mergers and acquisitions (M&A) activity is expected to accelerate in 2024. Ashleigh Barker, Director in Lincoln’s Consumer Group, explores the state of the beauty… Read More

Food & Beverage Market Update Q4 2023

The 2023 mergers and acquisitions (M&A) market was challenging with uncertainty driven by record-high inflation, Federal Reserve interest rate hikes and overall global unrest.