Skilled. Results-Driven. Efficient.

Restructuring and retail: A surge is likely in 2023

On Behalf of | Feb 13, 2023 | Corporate Bankruptcy & Restructuring

The retail industry continues to struggle in today’s market. The combination of earlier hits from the COVID-19 pandemic and supply chain issues with continued high levels of inflation have left businesses throughout the country with frustrating sales reports. Some choose to close while others file for relief through a Chapter 11 petition for bankruptcy.

In a recent example, Party City has chosen an attempt to restructure through a Chapter 11. Leaders within the business explain that they plan to expedite restructuring in an attempt to avoid liquidation with an aim to complete the process before the end of the second quarter.

Will restructuring work?

Any business leader or investor is wise to carefully consider the benefits and risks of restructuring before moving forward. In this example, the business was growing prior to the pandemic. It reached over $2 billion in revenue in 2019.

Even with these positive numbers and projections for potential growth in the future, critics voice concern that the business’ past focus on brick and mortar stores instead of a shift to the digital marketplace will stifle future growth.

What can other business leaders and investors learn from this example?

The back and forth between the push to restructure and concerns about failure are common. Other lessons that business leaders can learn from this case include:

  • Timing matters. In this case, the retailer moved forward with the filing after a bump in sales from the holiday season. This was wise as it provided a financial cushion that can help increase the odds of a successful restructure.
  • Perspective is important. Recent sales reports for Party City are poor but it is important to keep in mind the impact of outside factors (like the pandemic). Although recent sales reports were poor, Party City has potential for success. Those in favor of the restructure option point to the fact that sales were up over 11% compared to prepandemic levels as support for the likelihood of success through this approach.
  • Prepare to shift. As noted above, a focus on physical stores is generally not wise in today’s market. Party City is using the restructuring process to help shift to a smaller number of physical stores. This highlights the ability to use restructuring as an opportunity to pivot the business and steer it towards more successful options.

Liquidation may seem like a quick and easy way to get creditors their money and move on to other ventures. Although a restructuring plan through a Chapter 11 petition for bankruptcy can take longer and does not result in more immediate payment, it can also prove more fruitful for most involved. When done wisely the move can set the business up for future success and allow most investors and creditors to reap a higher financial reward.

Of course, knowing when it is the right decision is the key ingredient. Legal counsel can review the situation and provide insight into the which option may prove best for your specific situation.