Troubled Chains Need to Get Off the 'Watch List' ASAP

Ramping up real estate efficiency can help retailers be more competitive and avoid the high cost of bankruptcy restructurings, advises Andy Graiser of A&G Real Estate Partners

NEW YORK, Nov. 22, 2024 /PRNewswire/ -- Retailers with worsening sales and traffic need to act now to stay off the growing "watch list" of troubled chains and avoid the rising costs of Chapter 11 bankruptcy filings, advised A&G Real Estate Partners Co-President Andy Graiser.

"By acting proactively and strategically to right the ship as quickly as possible, retailers can lower their restructuring costs and bolster their odds of emerging with less debt, higher cashflow and a nimbler and more productive real estate portfolio," Graiser writes in a Chain Store Age Online "Expert Viewpoints" piece published on Nov. 5.

The real estate dimension is particularly important, the executive notes, and yet retailers often are too slow off the mark when it comes to portfolio optimization, leading them to head into out-of-court or Chapter 11 restructurings with inadequate clarity about:

• their supply chains;
• the individual stores they should close;
• how to engage landlords on lease restructurings and terminations;
• consumer trends; and
• what to do about non-store real estate such as office holdings and warehouses.

"Attacking the problem when you still have liquidity is critical," Graiser writes. On the front lines of portfolio-optimization on behalf of both healthy and distressed clients, his New York-based firm has achieved more than $13 billion in tenant savings through lease restructuring, selling more than $12 billion in leases and real estate assets along the way.

Identifying real estate market trends should be one of the first steps in a comprehensive portfolio-performance review, Graiser advises. "In some cases, individual stores run into trouble, not because of fatal flaws in the local market, merchandise or store manager, but because important co-tenants have exited or seen operational declines," he observes. "This can happen regionally or nationally when a major co-tenant goes out of business."

The potential for store closures to have cascading effects on the rest of the retailer's portfolio is another key consideration. "Where will your existing customers go if you choose to close a particular location or locations?" Graiser writes. "Can you configure your in-market presence in such a way that it maximizes the transfer of your existing shoppers to your remaining locations, and not those of your competitors?"

Third-party real estate advisors can partner with retailers to review their portfolios and answer such questions. They can also make sure retailers have up-to-date and granular data at their fingertips in areas such as:

• sales trends and box sizes
• market rents
• occupancy costs
• barriers to entry
• geospatial traffic data, and
• the quality and trajectory of stores, shopping centers and submarkets.

Understanding the position of individual landlords is essential as well. "The well-heeled owners of top-tier shopping centers generally want a freer hand to execute redevelopments and/or remerchandising strategies," Graiser writes, noting the need to "zero-in on valuable lease exclusives and site-control clauses that could serve as powerful bargaining chips" in such situations.

While conducting store-by-store reviews, meanwhile, "seemingly small nuances also can be important," Graiser adds. "Problems with store management, parking, signage, labor, deferred maintenance or shoplifting/shrink should not be ignored in your real estate decisions."

Portfolio reviews also should cover fee-owned properties and non-store assets, which can be downsized, sold, relocated or subleased to support the broader strategy. That could include corporate offices, warehouse distribution centers and transportation facilities. However, the effects on operations of shuttering a warehouse must be carefully considered.

"What will happen to logistics, fulfillment and customer service without that asset?" Graiser writes. "If it ultimately falls into the 'keep' column, what kind of lease term and structure would be best?"

The right strategy and information can help the entire team understand the "art of the possible" and act decisively, Graiser concludes. "Yes, information is power, but timing matters, too."

The full column is available at:
https://chainstoreage.com/troubled-chains-need-get-watch-list-asap

Media Contacts: At Jaffe Communications, Elisa Krantz, (908) 789-0700, [email protected]

SOURCE A&G Real Estate Partners