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Overleveraged & Poorly Merchandised Stores Will Continue Disappearing, ABI Journal Article

December 04, 2017, 07:00 AM
Filed Under: Retail

Retail bankruptcies to date have largely been the result of the changes in the retail industry and evolution of customer preferences, high-risk LBO structures and terrible store merchandising, according to an article in the November ABI Journal. “People now want retail to be fun and offer a variety of experiences beyond just shopping,” J. Michael Issa of GlassRatner Advisory & Capital Group LLC (Irvine, Calif.) writes in “The Rest of the Story About the State of Brick-and-Mortar Retail.” “This means that clever and insightful merchants can still survive and prosper while the staid retailers stuck in the past, poorly merchandised and incapable of evolving, will disappear — likely at an accelerating rate.”

While retail bankruptcies are nearing a post-recession high, Issa writes that many commentators have overstated the growth of online retailing as the culprit while failing to take into account the additional factors that are driving the increase in retail filings. “Merchandising is one of the hardest things to do well in business, and there are only a handful of really good merchants in the business at any given time,” Issa writes. “The management teams at the failing big box retailers simply have not created reasons for customers to come into their stores.”

Issa pointed to another common thread in recent failed retailers: Many were acquired by private-equity firms in highly leveraged transactions. “The result was a reduction in store ‘free cash flow,’ and there was no margin for error when the business then hit bumps in the road,” he writes. Without much financial margin for error, Issa also points out that struggling retailers also face an over-retailed landscape. “The amount of retail square footage per capita in the U.S. is about 1.5 times the next-highest country (Canada), he writes. “This creates a retail environment that is profoundly Darwinian.”

To read “The Rest of the Story About the State of Brick-and-Mortar Retail” from the November edition of the ABI Journal, please click here.

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