As someone who spent his formative years helping out a parent who had a retail business, I have always had an interest in the retail sector and the challenges facing those working in it.›

Even before Covid-19 hit it for six, it is fair to say that executives and senior management in retail had challenges to face with declining consumer demand, a gradual migration from store to online models and the costs associated with staff and properties. 

Furthermore high street retailers with more than one location may have had significant problems being tied into leases on stores which were loss making or which were at best breaking even.

Covid-19 has significantly added to and exacerbated these already difficult mix of challenges by presenting an every evolving and changing set of circumstances and problems which retail executives now need to adapt to.

Management were forced to close their stores in March and whilst, certain sectors of retail have started to reopen –phase three of the Governments plans, commencing on June 29, is when non-essential retail outlets are due to open their doors “with street level entrance and exit”.

Whilst reopening is the goal of every retailer many will now be faced with three distinct problems to which they may need to consider the one solution which has proven to address all three issues. Those problems are

1)   Drop in Footfall

2)   Accumulating Financial Issues

3)   Property challenges

1)        Drop in footfall

Consumer demand and footfall will undoubtedly be effected as stores reopen. 

• The impact of social distancing will be felt in a major way as stores are possibly obliged to revamp stores, put in limits on number of customers in a store, operate one way systems and implement socially distanced queuing to checkouts behind screens
• Certainly “social shopping” will be less attractive and “customer dwell” when people wander around shops looking for retail inspiration and the opportunity to buy discretionary purchases on a whim will be massively curtailed.
• This will be exacerbated by consumers own concerns about their personal safety and health which will impact their confidence and willingness to shop on high streets and in shopping centres as they wish to minimise human to human contact.

It this context, it is hard to envisage a scenario where there remains a “reason to shop” and where online adoption will not continue to accelerate beyond the crisis with previously non digital consumers now seeing online as a real and credible alternative to physical stores. These new online shopping habits will not be quickly dropped, particularly amongst the elderly and middle aged.

There is also issue that there will be a realignment of purchasing priorities as consumers may also be tightening their own belts as Covid-19 has a knock on effect on employment and discretionary spending. With the recovery of the  economy unlikely to materialise before the mid or end of 2021 and employment  uncertainty growing, many consumers will cut discretionary spending altogether or reallocate it to lower-priced options. We have already seen in other jurisdictions where a lack of income and economic uncertainty has led consumers to curtail spending and up their savings. 

2)       Rapidly accumulating financial problems

Combined with these unpalatable prospects is that a number of high street retailers are not in a position to discharge outgoings as their stores close. Whilst the Covid-19 wages subsidy is helping manage the costs of holding on to staff, payment windows for leases on properties and payment of taxes are for many retailers kicking a very big problem down the road. 

Landlords will be slow to write off rent and Revenue are precluded from writing off debt except through a formal insolvency process such as Examinership.

In this regard, multi-unit retailers with significant staff and lease obligations could be incurring and accumulating hundreds of thousands of liabilities per quarter which will need to be repaid at some time in the not too distant future.

In addition where staff need to be made redundancies – large liabilities for redundancy, unpaid wages, minimum notice and unpaid holidays may crystallise.

3)       Unviable Stores

Previously loss making or breakeven stores which were supported by well performing stores could now be an unsustainable burden on the business that could possibly make the whole operation unviable. However the issue of long term onerous leases will not be easily resolved as landlords will not want to be faced with centres with a significant number of empty shops.

A solution for retail executives to consider

Faced with the above set of circumstances, the executives of multi-unit retailers should consider Examinership as a possible solution.

Indeed given that we have seen many times how multi-unit retailers are exceptionally well suited candidates for examinerships and have a very high success rate, they may be remiss in not doing so. 

Examinership can enable the company with the assistance of an Examiner formulating proposals

1)   Focus on the aspects of the business that will make it viable going forward and ensure that any investment raised is directed to a viable future proofed mode.

2)   Triage the bricks and mortar issues by right sizing the cost base of the company by negotiating leases and rents to affordable market levels and by disclaiming onerous leases on properties which are not viable

3)   Write down pre-petition debts (legacy debts before entering into Examinership) with the payment of a dividend which is substantially less than the historical debts. This would include Revenue Liabilities which the Revenue Commissioners are precluded from writing off or compromising in other circumstances.

The process of Examinership can be researched on our website at https://frielstafford.ie/examinerships/

Should you have any queries on the advantages and the process of Examinership for Multi-Unit Retailers concerned about store viability and wish to discuss it in detail – please do not hesitate to contact me by email at tom.murray@frielstafford.ie or by phone on 01 – 661 4066

Tom Murray is one of Irelands most experienced Turnaround and Restructuring practitioners.