Guest Slot – City Insider – Dan Coen

Christmas is the final big hurrah of the year for consumers but for an unprecedented number of retailers the festive season this year will not be a celebration. It will be their last quarter before restructuring forces major change upon them and their survival is put in doubt.

Christmas 2011: more funereal than celebratory.

Having just passed the critical September quarterly rental call without any high profile casualties – beyond Alexon – many troubled retailers will now be biding their time in preparation for squeezing as much out of the peak Christmas period as possible before their key stakeholders consider their options.

At the post-Christmas cash-peak many banks, investors and private equity firms will use it as an opportunity to make some tough decisions – from options that will include selling the business, liquidating it, or undertaking a major restructuring exercise.

It is the case that there are now an unprecedented number of retailers in high-stress situations after trouble first began to appear at the June rental call when a spate of failures including Jane Norman, Habitat, Homeform and TJ Hughes hit the headlines. Beyond these, many others (including some well know names) struggled through and negotiated different payment profiles with their landlords to see them through the third quarter.

However, the last three months’ trading has not been the saviour required by these merchants and there has been plenty of navel-gazing as company’s attempted to come up with a solution for paying the September rentals bill.
Desperately seeking a solution for the rentals bill.

This cash call could have prompted the end of the road for many but the allure of Christmas is simply too strong and so decisive action by stakeholders is being delayed until the year-end. Not wishing to be too downbeat about this but many have effectively been given a stay of execution.

Without doubt lenders to retail businesses will have been doing everything in their powers to help their customers raise the funds to overcome the September call because this now leaves them to concentrate on maximising their  Christmas output.


As well as the tough trading environment the big elephant in the room is that 2012 will see one of the largest re-financing periods ever for the retail sector. However, for many bricks and mortar retailers facing structural and operational pressures, there is likely to be little appetite from banks to offer them new facilities and so few of these re-financings will  go through. At best, new facilties will be on very punitive terms.

This will be a further prompt to action being taken immediately after Christmas and before the first quarter’s rental call. Not only are contingency plans being put in place for struggling retailers but there is evidence that even the strongest merchants are looking beyond December 25 at the hurdle rates their businesses face in 2012. They know structural change will happen and they want to ensure they are at the forefront of this.
Even strong retailers can see the future challenge.

These stronger operators are defined by some key characteristics including low fixed property costs and limited leverage with a low debt-to-ebitda ratio. In addition, having an effective multi-channel offering is increasingly representative of strong, innovative retailers that are focusing on customer needs.

While we still have plenty of successful retailers the sad reality is that over the past 20 years there has been a sustained period of strong growth in the retail sector and for too many merchants it has simply been a case of hitching a ride on this runaway (gravy) train.

With the economy having reversed into a likely prolonged low-growth phase it is not surprising that serious problems have arisen for many of these businesses and Christmas will unlikely deliver them the present they most desire.

Dan Coen is business development director at Zolfo Cooper

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