The rise of online digital retail has been a significant disruptor to the traditional brick and mortar trading model, with online sales tripling in the past decade. The Covid-19 pandemic has further accelerated this trend away from brick and mortar retail to online.
The pandemic has accelerated the growth of the “Omnichannel” retail model with successful retailers now able to combine digital, wholesale, concession and brick and mortar channels to reach their customers.
Footfall in physical retail has been reduced across the board due to the pandemic. However, the scale of its impact has varied dependent on product (essential retailers remained open) and location (shopping centres and retail parks accessible without public transport have thrived once re-opened, whilst city centre locations have continued to struggle as people have been required and then chosen to stay closer to home).
Whilst governments worldwide have looked to support distressed sectors, many retailers are now left with significant liabilities accrued and an extremely uncertain trading environment.
Latest Financial Advisory Insights
Key Sector Issues
Ongoing impact of Covid-19 on bricks and mortar retail
- Even for essential retailers, lower high street footfall during the pandemic impacted store revenue.
- The long term impact remains uncertain. Some retailers are announcing that marginal sites and portfolios will not be reopening, while others are looking to review their store portfolio.
- Changes in consumer behaviour has produced winners in leisure and home products, however even these retailers face uncertainty as to whether these trends are temporary, making future planning complex.
Extension of government support reducing or delaying widespread distress
- Governments around the world have stepped in to support retailers and delay any immediate distress. Despite this support, many retailers have accrued significant trading liabilities and increased borrowings.
- As governments withdraw support and protection, retailers are under pressure to cover their fixed cost base, whilst also starting to meet these accrued liabilities. Faced with meeting these additional liabilities, many business models which previously generated cash may no longer do so.
Landlord dynamics changing between retailers and their landlords
- Commercial landlords are facing their own issues, with significant sums of rent being unpaid, increased turnover rent deals and concerns with their own stakeholders making agreements difficult to reach.
- Government intervention in the market remains unclear and whilst uncertainty remains, it may be tricky to reach accepted principals with which to drive commercial settlements.
Global supply chain pressure
- COVID-19, Brexit, Shipping Capacity and the Evergreen grounding have exposed the fragility of the global supply chain and driven up raw material and transportation costs, causing some materials shortages.
- Whilst consumers are showing signs of “Revenge Buying”, it is unclear whether the rise in supply cost will be permanent. If they are permanent, it is also unclear whether those costs can be passed onto consumers or if they will feed through to squeeze margins.
- Retailers are being challenged to manage a ramp-up in demand and plan the funding required to ensure an uninterrupted supply chain.
Options available to unlock value
- Retailers are being forced to consider all options available to address the challenges presented and ensure their businesses are flexible (including addressing fixed costs and long-term liabilities).
- As markets reopen, retailers may look to free up working capital for investment in Digital and Wholesale channels and consider alternative go-to-market approaches e.g. Marketplace/wholesale operations.
- Taking steps to protect or develop supply chain relationships is critical to ensuring a competitive advantage.
How We Support You
Performance Improvement and Operational Considerations
- Our Teneo Value+ team is focussed on rapid identification of cost reduction and performance improvement initiatives to unlock value by driving cash generation and/or profit improvement.
- We have a strong track record of delivering rapid diagnostic assessments and performance improvement, supporting management design, implementing comprehensive cash flow forecasting and management frameworks, identifying commercial/financial targets driving inefficiencies and delivering significant cash savings and tangible working capital improvements.
- We have been involved in advising retailers preparing to respond to demand management challenges by working with the supply chain and treasury functions to optimise working capital whilst continuing to meet demand requirements.
Unlock Value Via a Consensual Restructuring
- Our restructuring team is well placed to advise boards as they make difficult decisions with limited liquidity and time. We have experience working with a complex set of stakeholders and managing the interactions and dynamics, both within a diverse lender group and also with the company and shareholder.
- Pivotal to supporting this is building and managing an information platform on which to successfully negotiate with key stakeholders. We are able to draw off our retail expertise and understanding of the lenders' perspectives and behaviours to ensure you have a strong position when discussing lender requirements in any restructuring.
- Our team can help with how a proposal is presented and framed with lenders together and will assist in negotiations with lenders and their advisors to build consensus support for a proposal.
Corporate Advisory - Support During Lender Negotiations
- We have worked with many major UK and international retailers to identify options and levers that might be available to support their business during the lockdown and leverage opportunities that the reopening of the economy presents.
- In our experience, consensual solutions are the best outcomes for all parties, allowing the burden to be shared. We have supported clients in the steps required to achieve this, which have included reviews of the stakeholders, leading negotiations and considerations of the alternative options e.g. CVA portfolio analysis, restructuring options analysis, Accelerated M&A options.
- Where required, and consensual options are exhausted, we have successfully implemented a number of alternative solutions to restructure liabilities.
- A PE owned global nursery brand headquartered in the UK.
- Business was experiencing persistent annual losses and required a significant urgent funding injection. Teneo was engaged to complete an accelerated strategic review with a goal of rapidly improving profitability and minimising funding requirements.
Teneo’s approach to identify and implement cost savings included:
- Day-to-day cash management – Improving forecasts and processes, to give better visibility of low points and funding requirements.
- Strategy – Developed visibility on profitability by channel. Looked at business plan for closing all or some stores and the risks involved.
- Cost reduction – Identified implementable cost savings totalling c.20% of cost base (80% of which was implemented in 6 weeks), from organisation departmental review across operations, employee structure and opex.
- Rent – Closure of 5 loss making stores and renegotiation of remaining leases.
- Working capital – Deep dive analysis into stock and supply chain, reduced year on year stock by £4m / 25%.
- Teneo worked to develop a robust turnaround business plan which showed a return to profitability and cost reductions steps which could be implemented immediately and worked with management to implement upsides identified.
- The business is now trading profitably.
- Teneo was initially mandated to undertake an options review for the Group – which largely centred on its leasehold estate (c. 600 shops) and culminated in the launch of 7 CVAs to restructure the leases alongside a broader restructuring.
- Despite the CVAs, the trading environment remained extremely challenging and was exacerbated by Covid-19, resulting in the Board concluding that the group should be placed into Administration.
- Initial analysis involved a deep dive into the underlying business to assess viability (CVA) before working with management to prepare and launch the CVA.
- Upon the decision to file for Administration, certain partners were appointed to 27 entities in the Group. Management powers ceased with the companies being placed under the control of the Administrators.
- This role involved running each of the businesses on a “day to day” basis and making executive decisions such as purchasing stock, making redundancies, closing shops etc.
- We also ran and delivered the sales of the respective brands into new ownership.
- The Joint Administrators delivered a successful sale of all brands (except Outfit) in addition to a number of property sales (which continue to be progressed).
- Realisations for creditors to date in excess of £500m.
- We were engaged by the Board to consider the restructuring options available to them before supporting with multiple phases of stakeholder engagement including alternative comparator analysis and working capital management.
- Teneo prepared various options analysis using different CVA methodologies including an approach to rebase rents to a % of turnover.
- This included analysis of CVA benefits, risks, potential voting outcomes and alternatives available.
- Developed a detailed alternative outcome model to consider potential outcomes for creditors in the event that a restructuring was not successful.
- Worked with M&A advisors and other stakeholders in the restructuring including lenders, pension trustees, shareholders and potential investors to educate on the CVA process and explain the alternative outcomes to drive towards a restructuring solution agreed to by all parties.
- A CVA was successfully launched and implemented (with over 90% creditor support) to restructure the leases and move the majority of the portfolio to turnover rent. Contingent on this, £100m of equity funding was invested.
Teneo refers to Teneo Holdings LLC and its subsidiaries and affiliates worldwide. Securities products and services are offered in the United States by Teneo Securities LLC, member of FINRA and SIPC.
Details of the entity providing services, legal and regulatory information in respect of the Teneo entity are also included in our engagement letters.
Specific information relating to our regulated entities which provide services to clients is detailed below:
|Registered Name||Legal Form||Registration Location and Reference||Registered Office||Data Protection||Regulator(s)||Professional Indemnity Insurance|
|Teneo Financial Advisory Limited||Limited Company||England & Wales, 13192958||5th Floor, 6 More London Place, London, SE1 2DA||UK - ZA920639||The Institute of Chartered Accountants in England and Wales (“ICAEW”) C008873136. All insolvency practitioners are licenced by the ICAEW. ICAEW Designated Professional Body licence for a range of investment business activities.||Details of the professional indemnity insurer can be provided on request.|
|Teneo Securities LLC||Limited Liability Company||USA - Delaware||280 Park Avenue, 4th Floor, New York, NY 10017||N/A||Financial Industry Regulatory Authority (FINRA) #151256. Securities and Exchange Commission (SEC).||Details of the professional indemnity insurer can be provided on request.|
Teneo Securities LLC’s Business Continuity Planning
Teneo Securities LLC has developed a Business Continuity Plan (“BCP”) on how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions is unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, we are providing you with this information on our BCP.
The Firm has developed and installed a BCP in the case of any business disruption that causes the Firm to have limited or no communications with its employees or customers. Our plan anticipates two types of business disruptions, internal disruptions which affect only our Firm’s ability to do business (such as a fire in our building) and external disruptions that prevent the operation of securities markets or other firms (such as natural disasters or acts of war).
The Firm intends to stay in business during both internal and external disruptions due to the fact that the Firm employees can conduct Firm related business from alternate off-site physical locations and the Firm maintains an alternate location for the maintenance of its books and records. We anticipate that the Firm will recover from internal business disruptions within 24-48 hours. An outage due to an external business disruption may be longer and is beyond the control of the Firm. However, the Firm will endeavor to resume business as soon as it is possible for the Firm to establish business operations from alternate off-site physical locations.
The Firm’s BCP specifically addresses the following areas related to Firm operations:
- Data back-up and recovery (hard copy and electronic);
- All mission critical systems;
- Procedures to test and determine the Firm’s ability to do business (i.e., financial and operational assessments);
- Alternate communications between customers and the Firm;
- Alternate communications between the Firm and its employees;
- Alternate physical location of employees;
- Critical business constituent, bank, and counter-party impact;
- Regulatory reporting; and
- Communications with regulators.
If you have questions about our business continuity planning, you can contact us (212) 886-1600.