Look Back – Retailer Cash Flow 2010

As we’ve discussed, 2010 saw various cash and liquidity issues that impacted retailers, potentially putting them at risk, and in some cases, ultimately led to a bankruptcy filing.

In October, we discussed some key strategies retailers can consider to try to avoid liquidation: including the maintenance of lean, less risky inventory levels, the reduction of payroll expenses through the use of part-time employees, and the renegotiation of leases with landlords in order to turn unprofitable stores into productive ones. We also looked at specific issues that reduce the retailers’ available cash or time to reorganize.

For our retail outlook for the coming fourth quarter, we touched on the likelihood that lenders may loosen credit terms for healthy retailers seeking additional capital this holiday season.  Last month we addressed the amendments to the U.S. Bankruptcy Code in 2005 that have reduced the likelihood that retailers will successfully reorganize after filing for bankruptcy. Our post also discussed the stricter collateral and working capital requirements bankrupt retailers have been facing when trying to secure adequate financing.

As we look forward to 2011, it appears we’ll see more stability in the retail sector than in 2010. We anticipate this stability will largely be driven by modest growth in same-store sales and a fairly small increase in new store expansion.  This increase in same-store sales suggests that many retailers will gradually improve their liquidity positions in 2011 if they continue to limit capital spending and focus on keeping costs in check. Improved liquidity will provide many companies with some flexibility to avoid financial distress if the economic conditions worsen in 2011.

Do you agree that modest growth in same-store sales will result in more stability in the retail sector next year?