Preemptive Strategies for Minimizing COVID-19’s Impact on the Retail Industry

Employee Issues

• Create clear and transparent workforce plans during COVID-19 and when health crisis abates
• Create healthy and safe workplaces for employees and customers
• Implement CDC and other health protocols and guidelines
• Consider workforce reductions, leaves of absences, related notices and cost savings
• Be cognizant of applicable legal requirements and regulations relating to the foregoing, as well as government and alternative support programs

Business Plans

• Identify and mitigate business disruptions and revise business plan to navigate current disruptions
  • Sales, distribution and operational disruptions will likely continue and may worsen
  • Supply chain disruptions will continue
• Anticipate and prepare contingency plans for further disruptions and length of COVID-19 impacts
• Reduce costs, discuss payment plans with vendors and creditors, manage and control spending and prepare to be in strongest position possible when COVID-19 disruptions abate
• Reinforce relationships with retailers, focus on online retailers
• Manage inventory and raw materials spent

Contractual Obligations

• Review contracts, licenses and leases to assess parties contractual rights and obligations
• Assess “force majeure” or “act of God” clauses that may give rise to a legal basis that excuses a party’s nonperformance under the contract or lease
• Negotiate rent abatements and extensions of other payments
• Ascertain if any claims to recover losses for non-delivery or other supply disruption and assess requirements of notices and potential waivers
• Ascertain cancellation and return rights of purchaser orders
• Maintain documentation of any losses your company suffers to support damage claims
• Evaluate and implement strategies to resolve issues if the business is not able to comply with contractual obligations to minimize consequences of a breach
• Analyze consequences of a potential breach
• Analyze any existing or new regulations that may require altering contractual obligations
• Consult experienced legal, financial, accounting and tax advisers as soon as possible

Distress/Bankruptcy

Where the market environment leaves no immediate alternatives, retailers, manufacturers and fashion brands facing credit, liquidity or operational problems should evaluate and consider:

• Developing detailed analysis of liquidity position, debt covenants and obligations and other potential bankruptcy and insolvency triggers
• Seek to secure debtor in possession financing options to finance the reorganization process and exit where applicable
• Engage experienced legal counsel and financial advisors/investment bankers to evaluate market opportunities in short and long term and potential strategic or financial buyers
• Take steps to maintain goodwill and value of brand/IP and business, reviewing all relevant contractual rights and obligations of various interested parties
• Analyze profitability of stores and valuable leases and determine an exit strategy
• If bankruptcy becomes unavoidable or the proper path forward for other reasons, diligently work with investment bankers to seek to secure potential stalking horse bidder to enable the company to conduct a Section 363 sale on the filing of bankruptcy
  • Allows sale of part or substantially all of its assets free and clear of claims and encumbrances, including business lines, contracts, leases, intellectual property, brands and accounts
• Consider lease rejection and, where applicable, going out of business sales for unprofitable stores, utilize online channels where possible