Part I: Getting on the Same Page

Globally, boards and management teams are taking stock of current operations and finances to identity vulnerabilities to the unprecedented distress that markets are anticipating from the pandemic for the next 12-18 months.  As part of those discussions, many retail businesses (and those with operations related to retail, like landlords, logistic companies, shipping interests, etc.) are focusing on receivables and risk weighting as to the collectability and the follow-on impact of doubtful accounts.

These conversations will inevitably lead to the age-old conflict that pins finance and legal functions – that are largely focused on risk – against business/sales functions, which are generally focused on sales and keeping customers happy.  Pre-pandemic, sales teams historically had a leg up as revenue generation inevitably trumped risk mitigation in the context of strategic decisions.  However, the same behavior and cultures that have been allowed to prevail when there

Humanity has largely embraced the “we are in this together” mentality from a health crisis perspective. Yet, even as world leaders scramble to contain the COVID-19 pandemic, we have yet to fully grasp the follow-on impact from the pandemic and particularly, how it will affect world economies. For this “second phase” of the world’s response to the pandemic, the ultimate question is whether business and financial counter-parties will equally share the risk of loss. Bankruptcy judges have jurisdiction to fashion remedies for parties in their courtroom, but Congress and COVID-19 have left them no choice but to rule on issues immediately in front of them without the ability to limit the impact of their decisions on other market players. With a goal of tempering the COVID-19 related damage, recent difficult decisions in U.S. Bankruptcy Courts have invoked unprecedented results, but employing U.S. Bankruptcy Courts as our method of policing the

With the holiday season now upon us, analysts are closely watching the restaurant industry, particularly the casual dining segment. Reminiscent of the conditions in 2008-2009, many are speculating whether the increase in online consumer shopping that served as a catalyst for the current “Retail Apocalypse” will reduce crucial holiday shopper foot traffic and push some teetering dining chains over the edge.

In the first half of Q4 2017 alone, there were at least three Chapter 11 filings by national and regional casual dining chains, including Romano’s Macaroni Grill and Vasari LLC, the second largest franchisee of Dairy Queen franchises. In Q2 2017, Ignite Restaurant Group commenced its Chapter 11 cases to conduct a 363 sale process for Joe’s Crab Shack and Brick House. Meanwhile, industry commentators are keeping a close watch on some household name chains and other mid-market brands such as Bravo Brio and Bertucci’s.

Following in the footsteps

Despite the downturn in many retail sectors, retailers should not automatically adopt a “glass half empty approach” but instead view the impending cycle as creating opportunities for companies in both the U.S. and globally.

In recent months, a steady stream of analyst coverage has painted a bleak outlook for the retail industry. Between February and March 2017, BCBG Max Azria, Eastern Outfitters, hhgregg, Gander Mountain, and Gordmans were among the companies added to the long list of retailers to seek bankruptcy protection. In February 2017, Moody’s Investors Service reported that the number of distressed U.S. retailers has tripled since the 2008-2009 recession. With 19 companies currently in Moody’s Caa/Ca retail portfolio, industry analysts are forecasting this current distressed cycle will surpass the conditions that existed for the industry in 2008-2009. The continued growth of online retailers is expected to hasten that result.

For companies with healthier balance sheets, the current