Adapting to ongoing shifts in consumer behavior is key to recovering asset value, advises Michael McGrail in Q&A with ABL Advisor.
 
Retailers’ store-closing and going-out-of-business sales are performing better than expected—especially in categories such as housewares, cosmetics, home improvement and fitness equipment, said Michael McGrail, COO of Tiger Group, in a Q&A with finance publication ABL Advisor.

“As bad as COVID-19 has been and continues to be, I’ve been pleasantly surprised by the sales results we’ve been getting,” McGrail said. “There’s strong, pent-up demand among consumers, and the best retailers are adapting.”

In the Q&A published on Oct. 20 (“Tiger Group COO Reflects on Retail in the Age of COVID-19”), McGrail gives his take on the effects of the crisis in areas such as appraisals, liquidation performance, seasonal retail inventories and the supply chain.

As noted by ABL Advisor, Tiger Group has been on the front lines of headline-making retail dispositions throughout the pandemic, partnering on selective store-closure projects involving JCPenney, GNC and Sur La Table, as well as chainwide liquidations for the likes of New York & Co., Modell’s, Barney’s and Stein Mart.

In response to a question about the challenges of running GOBs in 2020, McGrail cited Tiger’s liquidation of Modell’s, the family-owned sporting goods chain founded in 1889. The disposition process, he explained, was well underway before the imposition of COVID-19 lockdowns in the New York area, where most of Modell’s stores were concentrated. “With Modell’s we were at a standstill for about eight weeks,” McGrail recounted.

In addition to paying landlords for spaces that were sitting empty and dealing with shipping slowdowns, the team needed to overcome significant challenges on the labor front. As McGrail explained, unionized employees at Modell’s distribution center insisted on working no more than 30 hours per week; otherwise, they risked losing their extra $600 from the government stimulus package. “In reality, we needed them to work 60 hours per week to unload the distribution center,” he said, “but they wouldn’t budge.”

Tiger relied on its relationships with temp agencies to supply 2,000 employees per week and return Modell’s to full staff throughout the GOB sale. “The good news is that the bank is getting out in full,” McGrail said. “Despite the extraordinary challenges involved, we nearly hit the original appraisal values for the liquidation.”

ABL Advisor also quizzed McGrail on how shifts in consumer behavior are affecting retail performance. The COO noted that retailers are seeing strong demand for housewares, home-improvement merchandise and fitness equipment as consumers pass the time by carrying out DIY projects.

“Right now, The Home Depot and Lowe’s cannot keep any inventory on their shelves,” McGrail said. “In the past, when we liquidated sporting goods stores, we had very low recoveries historically on things like weights or other items that would be appropriate to a home gym. That has been totally flipped on its head. It’s part of the reason the Modell’s liquidation did so well.”

As people prepare more meals at home, kitchenware such as that sold by Sur La Table and JCPenney, also is in high demand, McGrail noted. Similarly, beauty items continue to sell well, in part because more consumers are doing their own hair and nails at home.

But apparel retailers, in particular, still face challenges, including the need to sell through a glut of seasonal inventory from this past spring. While some are offering huge discounts on that merchandise in their stores, this strategy carries a potential risk. “The customer gets used to those discounts; they get conditioned to expect it,” McGrail said.

McGrail has been encouraging larger retailers to launch pop-up stores where they can consolidate and clear inventory over the short term. “It works very well,” he said.

In the conclusion to the piece, the executive predicts continued contraction in retail amid the accelerating shakeout of winners and losers. “The pandemic event will almost certainly have lasting consequences for consumer behavior—just look at online shopping,” he said. “As an industry, we’ll need to stay nimble and adapt to those shifts.”

The full article is available here.