Journal of
Corporate
Renewal
Nov/Dec
2015
lease concessions does not constitute
an “operational improvement strategy.”
Timing is always a central consideration
when contemplating operational
fixes. In an out-of-court or prefiling
environment in which some time
is available, it is often appropriate
to create a list of marginal stores for
which a window of time is available
to prove that operational changes can
improve performance. Reasonable—and
inviolate—deadlines for such activities
ensure that these stores aren’t allowed
to linger beyond the time at which
they can be closed cost-efficiently.
5 Cash, Working Capital. Most retailers exploring store closures
aren’t wallowing in excess liquidity,
and store closures and cash have a
complex relationship. At the most basic
level, closing stores requires additional
lump-sum disbursements for expenses
like lease termination fees. This cash
expense is offset by the cash proceeds
of the going-out-of-business (GOB)
sales that typically accompany store
closures, but only to the extent that
these proceeds exceed the effective
advance rate provided against
inventory by a retailer’s asset-based
loan (ABL) facility.
Although it is hard to generalize across
the retail industry as a whole, it is often
possible to generate enough additional
liquidity from a well-managed and
augmented GOB process to at least
partially mitigate lease termination
Simplified Approach to Sales Recapture Analysis Figure 2
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continued on page 14
» Create historical dataset containing
a minimum of sales, advertising
and store location information
» Establish baseline sales trends
for all stores within the potential
recapture radius of the closed store
» Establish baseline sales trend
for a control group of stores
for the closed store
» Calculate sales uplift following store
closure for each store within the recapture
radius, relative to the control group
» Determine total level of recaptured
sales by aggregating sales uplift
data from nearby stores
» Calculate EBITDA impact of recaptured
sales based on the contribution
of incremental sales dollars
» Establish "proximity scores"
for each closed store based on
density of store surroundings
» Calculate average level of sales
recapture and associated EBITDA
uplift for each proximity score
» Establish proximity score for every store
and thereby calculate expected sales and
margin recapture for closing the store
GATHER DATA AND ES TABLISH BASELINES ANALYZE RECAPTURE FROM PAS T CLOSURES CALCULATE RECAP TURE FOR EXIS TING STORES
ONCE THE EXPECTED LEVEL OF MARGIN RECAPTURE FOR EACH STORE IS CALCULATED, I T CAN BE APPLIED TO AN EXISTING 4-WALL ANALYSIS
Net Benefit (Loss) of Closure = -4-Wall EBITDA + Recaptured Margin
