Shopping Centers Today

SEP 2017

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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16 S C T / S E P T E M B E R 2 0 1 7 PHOTO: DWIGHT BURDETTE R etail chains under the ownership of private equity firms are declaring bankruptcy and liquidating at an alarming rate, as the practices of high-leverage borrowing and equity stripping make it harder for vulnerable retailers to turn around. "If you look at the record of private equity in the retail industry, it is appalling," said retail analyst Howard Davidowitz, chairman of Davidowitz & Associates, a New York City–based consulting and investment banking firm. "Retailers that accept one of these deals in this environment are almost certain to go bankrupt." Of the 43 large retail companies owning chains of 10 or more stores and that have filed for bankruptcy since January 2015, private equity firms owned 18, according to news reports. "Most times these private equity companies still make out through giant fees and other payments they get, despite the company collapsing around them," Davidowitz said. "They are a disaster." Indeed, a Fitch Ratings study of 30 retail bankruptcies dating back a decade found that about half of them ended in liquidation, versus only 17 percent across other industries. And some observers note that factors like mounting debt maturities, supplier squeezes, operational missteps, overdue interest and lackluster online stores have already begun to push struggling retailers to the brink of bankruptcy, even apart from any involvement of private equity firms. "Any retailer that is not selling customers what they want and has an inappropriate capital structure is destined to fail," said Brad M. Hutensky, founder and CEO of Hartford, Conn.–based Hutensky Capital Partners. "I don't think the type of ownership alters that fact." Private equity companies, also known as leveraged-buyout firms or financial sponsors, generally acquire retail chains by contributing small amounts of cash toward the purchase price and borrowing the balance. They use the real estate of these target companies, which assume responsibility for repaying that debt, as collateral. Among the retailers that have gone bankrupt under private equity ownership are Aéropostale, A&P;, Bob's High and dry Retailers count the cost of private equity ownership By Steve McLinden S T O R E F R O N T S W H AT T H E T E N A N T S A R E U P TO

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