Step 4: See if
Lease Negotiations Could Help
Once potential stores to close have
been identified, it’s always worthwhile
to calculate the level of rent reductions
a current closure candidate would
need if it were to remain open.
Between co-tenancy provisions and
the increased frequency of retail
liquidations, tenants are now gaining
leverage in the renegotiation of
leases, and sophisticated landlords are
more willing to offer concessions.
But stores should not be examined and
negotiated in total isolation. Instead,
stores should be grouped by landlord,
and a cohesive negotiation strategy
for each landlord should be devised.
The company should also be willing to
offer concessions of its own, such as
offering to extend leases with more-profitable stores in exchange for lease
reductions on less-competitive stores.
When all is said and done, the
company also must be willing
to walk away from a lease if its
needs cannot be met. The ability
to know when to walk away from
negotiations and leave a store dark
can be a powerful negotiating
strategy when seeking concessions.
Step 5: Focus on
When thinking about the liquidity
impact of these closures, it’s also
important to keep in mind how
much inventory could be transferred
to existing locations or could be
liquidated at a steep discount. It may
be helpful to review previous store
closures to fine-tune assumptions
about which products and how
much overall inventory are worth
transferring. Another technique is
to monetize excess and obsolete
inventory by pushing through
going-out-of-business sales at
closing locations, which can help
offset the costs of store closures.
Step 6: Consider Closing Costs
Retailers cannot afford to ignore
closing costs, which typically include
two to four weeks of rent and labor,
with a small offset for liquidation of
property, plant, and equipment. It’s
important to have a tactical execution
plan, because each closure requires
focused corporate- and store-level
resources to help exit the property
Holly Felder Etlin, CTP, is a managing director
with AlixPartners and has more than 30 years’
experience providing turnaround services for
companies in the retail, distribution, consumer
products, financial services, media, and hospitality
industries. She leads her firm’s Diversity Task Force.
TMA recognized Etlin in 2007 with a Turnaround
of the Year Award for her work with Winn-Dixie
Stores Inc. and in 2011 with a Transaction of the
Year Award for Neff Rental Inc. She was named
Woman of the Year in Restructuring in 2014.
Spencer Ware, CTP, is a director in AlixPartners’
Turnaround & Restructuring Services group
in the firm’s New York office. He has 15 years
of experience in advising clients on complex
financial and operational restructuring matters.
Ware is an active member of TMA and served as
global chair of TMA’s NextGen program in 2015.
He currently serves as a global trustee and on the
TMA New York City Chapter’s board of directors.
efficiently. Those teams of resources
should lead the transition and hire
temporary help, if needed. The most
important trap to avoid involves
not distracting key operators from
focusing on their go-forward business.
Another important part of the
execution is the downsizing of
centralized support functions,
whose savings informed the
closure decisions. The authors
recommend performing additional
diligence and developing a tactical
plan for more-material or more-suspect savings targets from
centralized services to make sure
these savings can be realized.
Everything Must Go
This article has presented a toolkit to
use when considering a store closure
program. Not everything in the
toolkit may apply to each company’s
situation, and some of them should
be explored more fully. There are
also other factors that haven’t been
fully addressed, such as how to
handle oligopolies, understanding
market rents and prices, dealing with
liquidity concerns, and thinking
about whether a potential bankruptcy
could enable a company to reject
leases—or to credibly threaten
bankruptcy without concessions.
Overall, the key is to ensure that
everything that applies to the business
is carefully weighed. As store-closing
programs become the new normal,
one should challenge conventional
thinking, focus resources on
more-impactful assumptions, and
segment the results, making sure
all stakeholders are fully on board
long before closing the doors. J
The opinions expressed are those of
the authors and do not necessarily
reflect the views of AlixPartners LLP, its
affiliates, or any of its or their respective
other professionals or clients.
4 Starbucks 10-Ks.