Big box stores learning to survive with financial restructuring
Leaving a giant vacant space on the side of a mall or shopping centre is noticeable when a big box store falters. But just because a store missteps, doesn't mean it's doomed.
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Over the years, Canada has seen some big stores go bankrupt like Sears, Eaton's and Woolworth's. Nordstrom, Oak + Fort, and more recently Hudson's Bay, have also found themselves in financial hot water, but through financial restructuring managed to avoid the fate of big box stores that came before them.
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There's four different 'difficult' scenarios that companies can find themselves in when it comes to insolvency, according to David Lewis, partner and senior vice-president in financial advisory services with BDO Edmonton. However, the benefit of one of those options, the Canadian Companies Arrangement Act (CCAA), is that the companies can live another day.
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'The purpose of the CCAA in Canada is to restructure a business so it can continue on. Recently, what we've been seeing is it being used as winding up corporations due to large debt and multiple stakeholders having multiple different claims,' said Lewis.
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It takes a lot to make a big box store work, and there's no shortage of moving parts. Whether it's employees spread out across the country, giant properties, or mountains of inventory that must be distributed throughout the country (and in some stores has products attached to specific seasons), there's plenty of concerns to keep track of in the giant retail machine. Lewis highlighted a few reasons why big businesses might need to speak with an insolvency trustee like him.
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'Fraud is one of them,' Lewis said, adding that there's been recent trouble in the trucking industry related to it. Another is the 'big project,' which some companies either start or plan, hoping it will fix all its problems.
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But the most common issue is money.
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'Working capital is probably the largest challenge that most businesses face. Especially smaller ones, trying to time your payments from your customers, and then your payments to your various vendors, can always be a challenge, especially in this time where we have tariff uncertainty and inflation,' he said.
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As large retail stores seem to be increasingly struck with financial troubles, you might think it's a reflection of shifting consumer preferences. Although preferences have certainly shifted more online, John Pracejus. director of the School of Retailing and associate professor of marketing at the University of Alberta School of Business, clarified that consumer preference hasn't moved completely away from the brick and mortar stores, they're just opting for better experiences.
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