Retail Finance

Fundamental shifts are upending the retail industry, creating a make-or-break environment in which many retailers must rethink their business models in order to survive. In December, Paul Hastings hosted The Real Deal on Retail, a retail finance breakfast briefing. Our panel of industry experts shared their insights into the challenges facing the industry—and the opportunities to be found in these times of dramatic change.

Following are the top five takeaways from our discussion.

What's Next for Retail Finance: Top 5 Takeaways

  1. Innovation is critical for retailers to survive—and thrive.

    Seismic change is rumbling through the retail industry. These shifts are structural and systemic. Business is moving online. Stores are shrinking and closing. Landlords and investors are re-imaging what stores and malls can be. Retailers, investors and landlords need to dramatically rethink their businesses if they want to survive.

  2. Technology is reshaping retail, opening up opportunities and creating challenges.

    E-commerce and automation offer the potential for cost savings, while customer data holds the promise of a more tailored shopping experience. Such technology, however, can be expensive and difficult to integrate, and threatens numerous retail jobs. Retailers must avoid being too risk averse, while making smart investments that draw a clear line to greater value.

  3. Alternative lenders are focusing on looming debt maturities.

    The retail industry is struggling with an incredible amount of debt—and unlike in other sectors, many retailers do not have access to debt capital markets. Alternative lenders are finding creative investment opportunities, particularly focusing on the IP value in companies’ brands. Most alternative lending is occurring at the top of the capital structure where there are short-term investment opportunities and fewer risks.

  4. Asset-based lending (ABL) can help retailers manage risks—and provides an opportunity for large banks to invest in retail.

    The ABL market is competitive and active. Asset-based lenders provide much-needed flexibility to borrowers in the retail industry, enabling them to reinvest and employ new strategies. ABLs are a primary opportunity for struggling retailers looking to chart a way back to viability.

  5. Two main factors are driving retail bankruptcies.

    First, is there a source of recovery to support the new money needed to fund a restructuring? Second, what is the status of store leases and the landlord's opportunity to re-lease the space? While there used to be retailers lined up waiting to take over leases, now landlords have to be more accommodating. Still, most bankruptcies turn into liquidations unless the lenders can see a business to stay in—and the window of opportunity is small.