Prior to taking up the role of administrator for Colette By Colette Hayman this year, Deloitte restructuring partner Vaughan Strawbridge co-authored the following report. Key takeout? Working with landlords can set retailers up for success.
Over the last five years, premium retailers have experienced revenue growth of 81% and pricebased retailers 37%, while balanced retailers have only seen growth of 2%.
In the UK, an unprecedented number of retailers have been using the Company Voluntary Arrangement (CVA) process over the last two years, a legislative mechanism that can be used by a tenant company to restructure its rent obligations or change the terms of its leases across some or all its premises, often to the significant detriment of its landlords.
However, to date, over half of retail CVAs have failed, with the retailer ultimately entering into insolvency. This highlights that the CVA process, if used only as a short-term liquidity relief, will not help the retailer survive in the long term.
A retailer must identify the root cause of its underperformance and re-evaluate and reset, if required, its core strategy.
CVAs used in isolation of a considered turnaround plan, are a blunt and ineffective tool.
Experience in both markets emphasises just how critical it is for retailers to develop and articulate their value proposition, understand who their target consumer is and identify the optimal route to deliver value to them.
With little improvement forecast for Australia’s already challenging retail environment, and current growth the weakest since the 1990s recession, retailers and landlords need to, more than ever, work together to seek a collaborative solution that works for all parties.
There are real opportunities for retailers to optimise their physical portfolio by asking questions like:
• Are we maximising our current physical estate?
• Are we operating in the right markets for our business?
• Are our stores located in the destinations that our target consumers visit?
• Is there sufficient demand in our existing retail hubs for our products or can we tailor our offering based on local demographics?
• Are our competitors, or complementary retailers, nearby?
• Are there any other retail hubs that are more appealing for expansion or replacement of underperforming stores?
The power of data analytics can be one key to unlocking answers to these questions, enabling retailers to really understand their portfolio at a granular level, and identify opportunities to improve their portfolio through strategic exits and/or expansions.
A lack of agility and urgency to deal with underperforming parts of a business will catch up with you, and can restrict the value attributable to, and availability of, restructuring options.
With consumer preferences constantly changing, retailers need to continuously review their market channels and implement a multi-channel sales approach that seeks to provide consumers with a seamless shopping experience, whether they're shopping online from a desktop or mobile device, by telephone, or in a brick-and-mortar store.
This does not mean more or bigger is better, it means constantly finding ways which are smarter.
Whilst retailers continue to experience margin pressures, they can no longer afford to retain underperforming stores and need to work together with their landlords to deliver a manageable solution, where a keep, fix or move on approach can be deployed.
Working together to optimise a retailer’s turnaround plan Retailer’s should not underestimate the level of understanding landlords have of the current issues facing the sector or their willingness to work together.
Landlords need to be seen as a fundamental partner and integral to the likelihood of a successful turnaround.
Retailers need to demonstrate to landlords that cost reduction is only part of the company’s greater turnaround plan and not only a short-term liquidity solution.
Optimising the retailer’s physical portfolio to support its omni-channel strategy, growth strategy and customer value proposition must also be part of the longer-term survival plan.
What are you giving back to your landlord? Longevity, increased foot traffic, improved tenancy rates, or is it just a one-way street?
A prominent theme we have seen in the UK market has been frustration, as landlords have looked to ‘share the pain’ with retailers, rather than having it forced upon them through a CVA.
The Australian law provides greater protection to landlords, and so they need to be part of the journey to recovery.
In a continuing period of change, both retailers and landlords need to align mutual interests and work together to navigate through the challenges of the modern retail market.