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AlixPartners CEO on retail bankruptcies, industry outlook

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Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi speak with AlixPartners CEO Simon Freakley about the state of the retail industry.

Video Transcript

MYLES UDLAND: But let's talk about some businesses that are under distress, what companies working in the restructuring space are seeing out there these days. For more on that, we're joined by Simon Freakley. He is the CEO at AlixPartners. Simon, thanks so much for joining the program today.

I want to begin with a recent report that you guys put out looking at the restaurant space and some of the pressures that we're seeing there. And I think this number is right. It was quite alarming to me. Some 63% of full service restaurants are now distressed businesses. What is the plan there? What are the prospects like there for this space as we all want the world to get back to normal. But that is a tremendous blow to that sector of the economy.

SIMON FREAKLEY: Myles, thanks for including me this morning. Obviously 2020 has been an extraordinary disruption and not to say, of course, that industries weren't being profoundly disrupted before the pandemic came along. But as you say, the restaurant space has been hit very, very hard. And of course to state the obvious, the problem for the restaurant business is if you don't sell a meal or a drink today, it's not as if someone is going to buy two meals and two drinks tomorrow. So those revenue dollars are lost forever every day that these places are shut or compromised.

So the restaurant sector, the hospitality sector, but more broadly, Myles, the consumer goods sector, the retail sectors have been profoundly disrupted. Have there been winners and losers? Yes there have. Have people that have pivoted into strategies in the restaurant business for instance to say curbside pick up or delivery? Have they done well? Yes they have. But my goodness there have been winners and losers.

BRIAN SOZZI: Simon, Brian here. What are you telling the CEOs of these restaurant companies and these even retailers? What strategies could they employ to come out of this the other side? Probably much smaller, granted, but even just the fact that they could stay in business would probably be a big win for many companies.

SIMON FREAKLEY: Well, Brian, of course. As with every situation like this is agility, moving to action, having a clear strategy, and more importantly executing that strategy. And so, take a business like Uber for instance. I mean the classic Uber is down massively during the pandemic but Uber Eats is up over 150%. So it's not as if people in the hospitality space can't find strategies that work.

Many restaurants in metropolitan areas have moved to curbside pickup and much more efficient delivery mechanisms. They found that as a strategy to cope. But those operators who haven't been fleet of thought, who haven't had a strategy, who haven't moved to action to execute it, have indeed been left behind. There will be profound disruption in retail and hospitality. But also in retail.

But we look at retail, for instance, there have been again real winners so. You look at the hyper-local delivery aspect of Walmart for instance. Their ability to service people's urgent needs on a very local basis has actually driven their business, a business that had pretty much no online strategy three or four years ago now are the biggest online or second biggest online retailer in the US after Amazon.

So it's not as if there aren't successful strategies. But in talking to the clients that we have every day, it's a matter of being proactive, having that strategy, more importantly executing it with focus and pace. That's keeping them on the front foot.

JULIE HYMAN: There's one area Simon. It's Julie here. There's one area that's sort of the knock on effect from some of these retail struggles that I don't know how you can strategize out of. And that has to do with real estate and the mall owners. If their tenants are struggling, if their tenants are closing down, I mean, what do you do with that empty space? How do they navigate through this?

SIMON FREAKLEY: Julie, you're absolutely right. If you look at the traditional department stores, for instance, the Macy's, the Lord and Taylor, the Neiman Marcus, they've really struggled because of the closure of the stores are episodic closure, but also the drastic reduction in footfall. Same for the mall business. And even the discount operators, the JC Penneys, the Kohl's have been suffering for the same reason.

And so, the winners in the retail sector are those people that have had a viable omnichannel strategy. Having an omnichannel strategy in itself is not the whole solution because of course even if sales, revenues, have been maintained through a swing to online, the cost of fulfilling an online order is much greater than the cost of selling an item in a bricks and mortar store. So whilst some of the retailers that have omnichannel strategies have seen revenues maintained, they've seen operating margins reduce.

But you put your finger on a very important point, Julie, which is those people who are heavily reliant on bricks and mortar stores have a real challenge. Now, some for instance, like Primark, have made a virtue of the fact they've had no online strategy. And whilst they've been closed during periods of lockdown during which time they've had no revenue at all, they've seen a real bounce back as soon as the stores open again because of the profile of their customer base.

But it all boils down again to having a viable strategy and executing it well. But people who are not on the front foot who are overly reliant on bricks and mortar are not in the discount category I think are going to have a very, very difficult 2021.