Bankruptcy

How to Rescue a Failing Retail Business

Tip: Bankruptcy is not always as bad as it sounds.
How to Rescue a Failing Retail Business
Image credit: marcduf | Getty Images
Guest Writer
CEO of Integrity Marketing & Consulting
5 min read
Opinions expressed by Entrepreneur contributors are their own.

The retail industry is in big trouble. From mom-and-pop shops to major retail chains, stores are closing at an alarming rate, even as the economy grows ever stronger.

Related: 6 Steps Resilient Entrepreneurs Take to Rebound From Bankruptcy

This brick-and-mortar malaise cuts deep, decimating traditional retail giants like Sears and Macy's, and newer specialty stores like Lululemon, with equal ferocity.

The cause of the business nosedive? That's not immediately apparent, despite the fact that it's easy to point fingers at Amazon and other online retailers, though that doesn't tell the whole story. (Consider, for one thing, Amazon's foray into physical bookstores.)

Perhaps the explanation lies with millennials providing impetus for shift in American society away from the wanton materialism of past decades. In fact, millennials seem much more inclined to invest in experiences – going out with friends, traveling and trying new things. So, what does this mean for retailers?

Those business owners need to be aware of the trend, and be prepared in the event their own sales begin to slide. If you're one of them, your strategy might include downsizing or pivoting to a new online or on-demand model. With some restructuring, you may well be able to save your business in some form, even if the new model is not the busy mall store you first envisioned.

Pivots can work.

Publix, the supermarket chain, has long been a customer-centric brand that stays on top of trends. While most grocery stores sell ingredients, Publix provides a wide assortment or pre-made and made-to-order meals that range from seasoned meatballs you cook at home to ready-to-eat roast pork with an assortment of sides.

The company's Greenwise line offers a huge assortment of organic products, and its customer service is remarkable. Recently, Publix partnered with Instacart to offer home-grocery delivery within the hour.

Publix's bold move may seem risky in an era when more grocery items every day are offered online, but it may also serve to ensure that the company survives where others have failed. Like Publix, other retailers need to understand what customers want and make the changes necessary to keep their business intact.

Sometimes, though, you just have to reorganize.

Imagine that despite your best efforts, your business is failing and you find yourself in serious financial trouble. What now? Can you still pull off a rescue?

Related: The Fates of 21 Retailers Who Filed Chapter 11

I turned to bankruptcy firm Van Horn Law Group for answers. “For some businesses, filing Chapter 11 [reorganization] is a godsend. The protections offered by the legal process give business owners room to breathe,” attorney Chad Van Horn explained to me. “With creditors held at bay, you have the opportunity to restructure your debts and get your business back on track. If the situation has gone too far, Chapter 7 might be a better answer, if you are looking at closing the business and selling the remaining assets to attempt to satisfy some of your creditors.

"Your best course of action depends on your goals and on your specific situation.”

Reorganizing your business won't be easy, especially if you're already on the brink of disaster. But bankruptcy can be a powerful tool when used as part of a strategy designed to rescue, reinvent or dissolve a failing business. It's an uncomfortable conversation to have, but an experienced attorney can walk you through all the options available.

The bottom line

With your finances sorted out and your assets protected, you can implement a strategic plan. At this point, you might consider cutting expenses by moving from a brick-and-mortar model to an online one, or expanding services to better meet your customers' needs.

Or, you might think way outside the box and become the first retailer in your niche to offer, for example, on-demand OTC medicines and comfort supplies to the sick and elderly. Wouldn't it be marvelous to be a customer who can open an app and order hot soup, a cold compress and a bottle of Nyquil? Think about it. Whatever your product niche is, look for an innovative solution that's just what today's customers are looking for.

Moving forward with the Chapter 11 process will enable your company to be protected by the courts through “automatic stays.” "Aautomatic stays” put a stop on all debts which have been filed against you up to the filing date.

If, after your automatic stay, creditors request “relief,” the court may review the circumstances surrounding your relationship with them before granting such relief. For example, a secured creditor, like a bank, which is owed more than your collateral property is worth, might be looked on with favor by the court, especially in the event that your company cannot reorganize.

Related: A Failure Is Only Considered a Mistake If You Don't Learn From It

Once your plan of reorganization is submitted to the court, your creditors will have to approve it. This approval is not as strict as it sounds: There is no need for unanimity. If more than one-half of your creditors in a particular class approve your plan, and those who approve your plan make up more than two-thirds of the debt amount owed for that class, then your plan may well be approved, moving your business on its path to financial solvency.
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