42% of retailers expect to restructure as industry revenue declines persist, BDO says



Daphne Howland/Retail Dive

AUTHOR Ben Unglesbee@Ben_Unglesbee PUBLISHED Jan. 25, 2021 RETAIL DIVE

Dive Brief:

  • Following a record year for retail bankruptcies, 42% of retail CFOs reported that they expect to restructure or reorganize as fallout from the COVID-19 pandemic persists into 2021, according to BDO survey data.

  • Many of those companies continue to operate in a difficult financial environment, with 44% reporting that they expect their revenue to decline over the next 12 months.

  • At the same time, many retailers are making investments in their business, with 48% reporting that they are pursuing "digital transformation" in 2021. Nearly two-thirds said they are making some kind of investment in e-commerce, while 39% said they are investing in physical stores.

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BDO's CFO survey makes clear that many of the struggles of 2020 are likely to continue through the new year. In a sense, much of the industry is in turnaround mode after persistent revenue declines. And the environment today is tougher than ever with COVID-19 still spreading rapidly through the country and the vaccine rollout still in its early stages. Executives' own performance expectations have taken a stark turn from 2019, though have improved since the turmoil of last year. In 2019, 73% described their companies as thriving, while only 2% said they were struggling, according to BDO. For the coming months, the number of those who expect themselves to be at the head of a "thriving" retailer has plummeted to 34%, while 22% expect to be struggling and another 44% expect to be merely surviving. For both turnarounds and simple survival, one of the chief requirements is cash, a lesson learned the hard way last year. Over the next six months, according to BDO's survey, retailers are on the hunt for outside capital, including through sales or divestitures (42%), private equity investments (37%), bank loans (37%), government funding (36%), specialty financing (35%) and other sources. About two-thirds of those surveyed said they are raising capital to drive a turnaround or to simply remain stable. Last year's crisis in the industry brought with it a wave of bankruptcies that washed up companies both struggling financially for years prior and also those that may have skated along more or less fine had it not been for the pandemic. That 42% of retail CFOs expect to reorganize or restructure is a signal that there is a lot of distress still in the industry and more bankruptcies to come. Already this year, apparel seller Christopher & Banks has filed for Chapter 11 with plans to close its stores and sell its e-commerce business. There are plenty of others who could face a similar fate. For those with the means to adapt, the pandemic has also accelerated changes within the industry, especially around e-commerce and fulfillment options like curbside and in-store pickup. Moreover, it has sent some categories skyrocketing while weighing on others. Those all mean potential opportunities for the fast-moving and resilient.

"The scope and impact of the Coronavirus Recession requires retailers to make bold moves now to weather the challenges that lie ahead," said Natalie Kotlyar, national leader of BDO's retail and consumer products practice, in the CFO outlook report. "But bold doesn't need to be expensive. With a strategic lens, double down on tactical changes that align your offerings to the market and propel your organization into retail's digital future."

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