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How Retail has Changed Since the Pandemic

By Ian S. Fredericks, Arthur Zaczkiewicz (Host)
Home / Perspectives / How Retail has Changed Since the Pandemic
IF WWD Podcast 6.6.24

Ian S. Fredericks of Hilco Consumer — Retail joins WWD Voices host Arthur Zaczkiewicz to discuss retail’s ongoing evolution.

*This podcast was originally posted to WWD and Retail Rx



Arthur Zaczkiewicz  00:00

All right, welcome to WWD Voices. I’m Arthur Zaczkiewicz, Executive Editor of WWD. Today we’re doing the second in the series called chatbox with Getzler Henrich & Associates, which is a division of Hilco Global. And speaking of Hilco Global, the guest today is Ian Fredericks, who’s president of Hilco Consumer, and President of ReStore Capital. Did I get that right?


Ian Fredericks  00:24

I would say, I’m the President of Hilco Consumer Retail.


Arthur Zaczkiewicz  00:28

Okay, there you go correct.


Ian Fredericks  00:30

or Hilco Consumer and Retail, whatever you want to say there.


Arthur Zaczkiewicz  00:33

Okay. Ian, welcome. Thank you so much for taking time out today, maybe. So what is what do you guys do?


Ian Fredericks  00:40

Well, so my practice surrounds around all things related to you know, consumer goods companies, or retailers. We have, you know, we were originally founded as a large retail liquidation firm. So you think about the Bed Bath & Beyond, or Toys R Us goes out of business, we run those projects. And, you know, over the course of the last couple of decades, we’ve added on a lot of ancillary businesses. You know, we have a lending and investment platform that we call ReStore Capital, we have a technology platform, sort of a software as a solution or a service, or tech enabled services, called Restore For Retail. We have a wholesale inventory business, we have a furniture, fixtures and equipment business. So you know, anything that would touch or be useful to a consumer goods or retailer, we play in that space in a lot of different ways. And, you know, I have a lot of stuff on the horizon, potentially, as well.


Arthur Zaczkiewicz  01:47

So it was that how would you describe the current retail landscape?


Ian Fredericks  01:51

You know, I would say that retails in an interesting state. If you if you go back to the beginning of 2023, you saw a lot of distress in what I would call sort of the home product space. You saw Bed Bath & Beyond, which was obviously probably the largest, you know, home products, you know, only retailer in the country, you know, you had Tuesday Morning, which was a discount, you know, a little bit of a treasure hunt type home products business, you saw Christmas Tree Shops, which was primarily in the Northeast, you know, similar to that, you know, those all those were all companies that liquidated during the first, you know, eight, nine months of 2023. And I think that corresponded with, if you go back to 2020, what we saw were significant spikes and demand in that home products area. So when people were at home and not buying apparel, you saw, you know, a dramatic spikes in that, and that carried through into part of 2021. And then I think those businesses started struggling after those spikes, and that kind of worked its way through the system to 2023. I think what we haven’t seen, or what we saw in 2020, was a lot of distress in the apparel space, because people weren’t buying, you know, clothes or weren’t buying the same clothes, they were looking for stuff that they could, you know, sit at home in a comfortable environment with and, you know, that caused distress in 2020 and early 2021. And then, once the vaccines became, you know, very prevalent, you saw that apparel business start to really spike. And, you know, what I’m what I think and what I’m curious to see is, is there going to be distressed in that apparel space, you know, you’re certainly seeing retailers that are struggling, you know, and looking for to access additional capital because they’re starting to struggle. And so are we going to see distress in apparel? And then if I step back from that, and say, at a macro level, kind of what’s happening, you know, you have what looks very much like a really resilient consumer, you know, that consumer is still spending, you know, despite inflation, and I think, in large part, they’re still spending because, you know, they’ve seen pretty significant wage inflation for the first time and, you know, probably decades. You know, they’ve, you know, they’ve definitely worked their way through savings, and they’re spending more on, you know, credit cards now. You know, so it’s an it’s an interesting, it’s an interesting time for, for retail. I imagine there are definitely going to be some losers, but I think there are also going to be some winners and the better a retailer executes and the more they focus on kind of what I’ll call retail 101, I think the better off they’re going to be to. Sorry for jamming a lot in there.


Arthur Zaczkiewicz  05:04

The this is going back to the home goods space. Were they overleveraged? Also, I mean, it was it coupled with that, and it seems like a lot of companies, broader landscape, we’re taking money they were investing in online digital during COVID. Were they over leveraged? Was that part of the problem?


Ian Fredericks  05:24

Look, I think I think in general, we have a leverage problem, not just in retail, but sort of across sectors, you know. You’ve had a tremendous growth, you know, in the private capital market, you know, where you have these private credit funds where, you know, money that may have been allocated at one point to, you know, traditional private equity, is now going into funds that, you know, maybe have a lower return, because you’re not gonna get the same return on debt that you’re going to get on equity. But let’s put, you know, billions, you know, hundreds of billions of dollars into these private credit funds, that then loan money to businesses. And the funds act a lot like a private equity fund in the sense that they have a diverse portfolio, but that, you know, maybe across sectors where they’re loaning to, but it’s all debt. And those, you know, like private equity funds, those funds have, you know, sort of a, you know, base fee that they make off assets under management, or AUM, you know, maybe that’s 2%. So on an annual basis, the more assets they put to work, the bigger that 2% gets, and that 2% is, you know, there to cover, you know, the overhead. But if you do a billion dollars, under management, and then you get to $2 billion, you don’t necessarily have to double the size of your infrastructure to put that additional capital to work. So, you know, that incentive, puts a lot of capital into the market as debt, which then these companies are able to take on. And then when you saw a dramatic rise in interest rates, the effect that had on companies and retailers, in particular was your sort of Libor. Now, SOFR base rate, which was historically at like, you know, in these documents at a floor of 1%, was now 5%. So it had, you know, quintupled very quickly. And that puts, you know, that doesn’t affect your EBITA line that affects your free cash flow, because so now your cash instead of going to fund other things is now going to pay for your interest or debt service. And so, yes, I think they’re over leveraged. Yes, I think that, but you know, that over leverage in and of itself was not a big problem until interest rates rose dramatically, and now the amount of money that they had to, you know, set aside to pay that debt service, in some cases doubled. I mean, if you had a Libor, you know, Libor plus 500 loan, you know, now your base rate or your SOFR plus 500 loan now, your base rate of SOFR is at 5%. And you’re, you know, you know, the margin on top of that, that other 5%. Now, you’re paying 10%, where before you were paying like six, right? It’s it’s pretty significant thing. You know, and that makes it very difficult for these businesses to survive, because they’re already operating on, you know, you know, I would say pretty, insufficient amounts of cash.


Arthur Zaczkiewicz  08:50

So if I’m a CFO, I’m sweating, I’m looking at my cash flow, I’m looking at the investments I made in technology, you know, it’s jumped to maybe to 5%, you know, of my sit of my revenue. What do I do? I can’t, you know, if I’m the CEO, I can’t I can’t control inflation. I can’t control the war in Ukraine. I can’t control supply disruptions. You know, what do I focus on you? I think you said it before, like back to basics is that it just like focus on getting good product, you know, that that’s going to drive the right profits, and just focus on the consumer then forget everything else, like what do you do?


Ian Fredericks  09:24

I think you nailed it. Well, you know, if you if you. Let me put this in context, right? So, if you go back to the financial crisis, and the years after that, there was a massive shift to e-commerce, and a massive shift in investment to e-commerce. Wall Street was rewarding investment in e-commerce, you know, private equity was rewarding investment in E commerce. And I and, you know, so I think what a lot of businesses did was said, Okay, let’s refocus our attention. Stores are dead, and let’s refocus our attention on e-commerce, that’s our area where we can grow. And let’s, you know, try to grow as fast as we possibly can, during that period. And then fast forward to, you know, kind of 2020, you know, with COVID. And that looks like a winning recipe because people aren’t able to go into stores, and they’re not able, you know, to do certain things. And so the investment, then in technology just accelerates that much more. The reality is really not much business in the. Not much retail sales, in the overall retail sector are done through e-commerce. So if you back out grocery, auto, you know, gas stations, restaurants, and you just sort of focus on what people think of when they think of retail, you know, your your inline mall stores, your department stores, your strip centers, things like that. How much actually happens on e-commerce? And if you look at the second quarter of 2020, which was when the most stores were closed, I don’t think you’ve exceeded if memory is correct, 25% of overall retail sales in that period. So 75% of your sales, were still done in stores, even though most of the stores were closed, because you had a lot of stores that could stay open as essential retailers like Tuesday Morning is one example. Right? Tuesday Morning, going into COVID is on the verge of filing bankruptcy. And the company can stay open, because in their stores for most of their stores, they sell some food, it’s not a big part of it. And it’s more like, you know, you know, boxed food and things like that, like crackers or whatever. But those stores that sell that can stay open, Tuesday Morning goes from almost liquidating in 2020 to returning, they file bankruptcy, and they return an investment to their shareholders. So their creditors get 100 cents on the dollar plus interest and their equity gets a return on their investment. So they get reinstated, you know, maybe not to the same extent they were before they filed. But to think that equity and a retailer, you know, recovered. That’s staggering. Like that was an instance where COVID saved that business, because as we talked about earlier, that was the spike. So where have sales returned to? If that was your peak, and that was the best you were doing online. Where are they now? Well, they’re back under 20%. There’s somewhere around 17 18% on any given quarter. And so 80 plus percent of your sales still happen in stores. But all of your investment over the last decade plus has primarily gone into e-commerce. And even when we’ve looked at businesses that were still doing stellar amounts of e-commerce sales, that was still around 30%, to a third of overall sales for that business was in e-commerce and the market viewed that as successful. So stores got ignored, there wasn’t investment in them, you know, they didn’t focus on their employees, there’s really high turnover. But that’s where the vast majority of your sales come. That’s where you really interact with your customer in a one on one or meaningful way. You know, it’s not necessarily online, you can’t control your online costs that are variable and you have more variable costs, your variable costs in your shipping, your variable costs in your what’s the other one? In your marketing, right? You know, Facebook and other online and Google, you know, they can charge you for marketing with extreme precision, you don’t have that extreme, extreme precision in the context of your brick and mortar advertising. It’s much more predictable, you know, your employee costs in e-commerce, you know, those employees at a distribution center, that’s a higher, in theory, more skilled labor, that’s demanding a higher rate, because you have to compete with the likes of Amazon, who is paying at sort of the top of that and offering all these benefits. So to get people to work in your distribution center, you have to pay more your frontline workers in your stores, they’re paid lower. In theory, they’re lower skilled labor, but they’re the people who are they’re your brand ambassadors. They’re the ones who are interacting with your customers and you haven’t focused on them. Getting back to saying okay, I need to execute, you know, retail in stores. It’s not complicated. It requires a lot of work. But to make retail successful in stores is really all about operational execution. How to merchandise the inventory correctly, make sure that it’s merchandised correctly, how to interact with your customer in a way that’s going to have a positive impact on your brand. You know how to make sure that you get the inventory out of the back rooms onto the floor, you know, making sure your your store looks clean, and it’s living up to the standards. You know, all of those things are critical to having a positive customer experience in the store. And the reality is, people just haven’t focused on that, because they didn’t view it as adding value to the business because it wasn’t being rewarded by third party investors. And that’s really where the focus always should have been and really needs to go back to.


Arthur Zaczkiewicz  15:43

So it says a couple of lessons. And speaking of inventoring make sure you have on hand some jam and crackers, maybe that will save Pier One it could have saved Pier One instead of having candles, right?


Ian Fredericks  15:55

You’re absolutely right at Pier One, you know, perhaps is still here, because if they can stay open during that period. So that’s I hadn’t thought about that. But that’s interesting.


Arthur Zaczkiewicz  16:04

And so and the other lesson and I think TJ Maxx, I think they just released results, I really didn’t look at them, I thought it was good. But the headlines were positive and home their Home Goods, they’re not doing e-commerce anymore, right?


Ian Fredericks  16:19

Shut down e-commerce. Look, not saying. I will tell you that, you know, sort of that off price e-commerce platform, like Tuesday Morning would have been viewed as an off price home retailer. They couldn’t do e-commerce. And I’m not suggesting that you should compare Home Goods, which is that my memory is correct is Mar Max’s you know, home off price, you know, they’re not even in the same category, but neither one of them could solve for that. I don’t always have the same inventory, my inventory moves around a lot. And so I have to constantly be refreshing my website with new with the new content, and I also have to spend a lot of money to create that content, I have to have pictures, and I have to have, you know, I have to make sure I’m checking inventory levels correctly. And that has been pulled from the right, you know, from the right location in the distribution center, like that’s a lot in an off price context. For, you know, single sales, essentially, where a consumer comes in and buys, you know, you know, five single items. And now those have to go be picked all over, you know, a distribution center, or even maybe fulfilled from stores. And one of the things I didn’t mention earlier is, with all this additional investment in technology, one of the things we saw there in COVID was arising buy online, pick up in store, or even buy online return to store. In those instances, you’re now asking, you know, frontline workers in your stores to do even more than you already asking them before, right? And so all right now I want you to pick for the e-commerce and I’ve told people that they’re gonna get their stuff within two days. And oh, by the way, now you have to process returns, and you have to grade the returns to either put them back on the floor, or figure out how, what else we’re going to do with them. And we’re not sure what we’re going to do with the return. So just hold them in your back room. And those are going to take up space in your back room. We will figure it out later about what we’re going to do with those. I mean, it’s like everything just started moving back to the stores, which again, is probably your lowest wage earner, your highest turnover. And also the people who you’re asking to be the face of your brand with the consumer like you’re nobody’s helped them the investment in those people and investment in technology to help those people has been has been a big miss, you know, cause they really haven’t.


Arthur Zaczkiewicz  18:57

I have a solution or business if you if you want to join me in invest in this. I have an idea that that can be all outsourced like that, you know, say Target having a Target employee, go get the item and bring it out to the car or vice versa, getting returns, just outsource it to a vendor, and they get a cut. And everybody’s happy. And you could focus on the in store experience instead. Right?


Ian Fredericks  19:19

I think that’s a, I think that’s an interesting idea, the challenge you’re gonna have right now and look, we we, in 2019 I’d love to say we were able to predict COVID, but we’re not that smart. Right? So but in 2019 we sort of identified that all of the investment in technology was going into the things I talked about, but it wasn’t going into things to really help execute retail 101 effectively and provide assistance to those workers. So that operations platform I mentioned at the beginning, you know Restore For Retail, that was something that we, you know, started building the technology In incubating in 2019. Fast forward to 2020, it was how we operated when we couldn’t necessarily get people in stores. And when we were incubating it in Australia, Australia was one of the most severe lockdowns in the world, probably short of the China lockdowns. But they spent time in lockdown, especially in the state of Victoria, for you know, the better part of 2021. I don’t think they sort of got released until the fall, we were running projects where we were never putting people in stores and only getting visibility through this application. Because our team in Victoria couldn’t travel to any other states or even within without other states within Australia, or Victoria, you know. And those employees, you know, that was how we sort of took it from something we were building for ourselves to something we were building for retailers, because our clients are going, how are you doing this? You’re not shutting down, all of our stores are shutting out a subset, but how are you getting visibility into these stores? How are you doing this from your desk at home, and we put the technology in there. And, you know, they it really took off in Australia, which is why we’ve now brought it to the states. But our intent wasn’t to build something for third party consumption it was was an accident as a result of doing it, you know, kind of building this technology for ourselves in Australia. So anyway, sorry, for the side note.


Arthur Zaczkiewicz  21:24

That’s good. It’s so as we wrap up here what’s the second half going to be like and if I’m in retail, what do I need to focus on? I think I need to focus on operations, frontline workers, it sounds like from what you’re saying, what else? So what do we need to really invest in getting good product, managing my inventory?


Ian Fredericks  21:42

Yeah what I would say is the focus needs to be on. Let’s scrap that. The goal of retail lives, I have a product and I’m trying to put that product into a consumers hand. How can I do that in the most efficient and fastest way at the highest overall margin, right? One of the things that I think retailers and their investors focus on incorrectly, especially in a mature retail environment, is growing sales. I can buy sales all day long. And I can buy sales by discounting my merchandise, so that my sales goes up. But the more I discount, the more I have to sell which discount should drive more volume. But the reality is I’m shrinking my gross margin, and I’m potentially shrinking my gross margin dollars. So that’s having a negative buying, trying to increase my sales or comp to last year, I am decreasing, impairing my bottom line. I think the focus needs to shift from sales to gross margin dollars. So again, how do I get that product into the consumer’s hand at the highest possible price, that’s one thing they need to shift away from and stop looking at comp store sales. It’s just not the right metric in a mature retailer, from my perspective. Then it’s looking at, okay, through what channels am I going to deliver that product in the most efficient way? And the most efficient way to deliver that product is in your stores, you have the least variable costs. So you’re you have a pretty much fixed cost structure. And you need to be supporting your frontline teams, and making sure that one, they’re being those brand ambassadors with your customers. So they’re interacting with your customers in a positive way, you need to make it so they can perform their job functions, which are ever growing in a more efficient manager. In a more efficient manner. And validating that what the vision is at corporate is actually being executed in the stores effectively across all of the stores. You know, there there is and you know, again, this is like a little plug various technology, we’re not the only one, I would tell you, we’re the best but we’re not the only one that can deliver on that. But that’s going to free up your the more you can free up your team, from the tasks they have to do to perform their job functions in the stores to interact with customers, the better off your sales are going to be. So focusing there on these important and then it’s really looking at your you know how you deliver that product from the stores and saying, can we make that more efficient? Can we get it? Can we take out steps in that process? You know, can we streamline that process? Can we cut costs in that process to make that more efficient and just expecting that cutting corporate employees and giving people more to do is going to realize that outcome is not is not effective? You know, just piling more stuff on people’s plates. isn’t going to solve that. It’s going to cut costs, but have you ever really figured this out and do those people really have the time to implement that? You know, I think those three things, if I were a retailer, that’s what I would be, that’s what I would be focused on. That’s the message we’re trying to deliver and help our clients with, you know, and, you know, you you got to embrace change. You know, we’re moving into an environment or we’re in an environment now, where the old way being e-commerce is not going to be the way that you’re going to be successful, you really have to go back to the old old way of basic retail and thinking about getting my product into my consumers hands in the most efficient way at the highest price, and doing the basics to get that done. Because as much as retail has changed over the last however many decades, it’s really stayed the same in a lot of ways, too. So.


Arthur Zaczkiewicz  23:51

Excellent. All right. Thank you so much. How can listen to this connect with you on LinkedIn or do you have an email we want to share?


Ian Fredericks  26:02

I’m on LinkedIn, I’ll even give my mobile number because that’s really the, you know, my mobile number is (847)687-9375. And then other than LinkedIn or my mobile, my email address is So I very much appreciate this. I enjoyed the conversation. I’m sorry for being long winded with my answers. So I as you can tell, I have a lot to say on the subject.


Arthur Zaczkiewicz  26:41

It’s, it’s obviously not passionate about it either. So if


Ian Fredericks  26:43

No, I’m not passionate at all.


Arthur Zaczkiewicz  26:46

All right. Thank you, and thanks for tuning in. And we’ll see you next time.


Ian Fredericks  26:49

Thank you!

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Ian S. Fredericks

President & COO
Hilco Consumer - Retail
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