'Retailers were dealing with extraordinary disruption' before COVID-19: AlixPartners CEO

Simon Freakley, AlixPartners CEO, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss the outlook for retailers as they struggle to find the road to recovery following COVID-19.

Video Transcript

BRIAN SOZZI: Retailers are on the road to recovery after getting hit by COVID-19. One of the firms looking to help lead the way is AlixPartners. Here to discuss is the CEO, Simon Freakley.

SIMON FREAKLEY: Good morning.

BRIAN SOZZI: Simon, good to see you this morning. I follow-- I have followed AlixPartners for some time, and I know right now, you're in the trenches working with the JC Penney, working with the J. Crew. For these companies that are-- have been under so much pressure, what are the outlooks? What happens to them?

SIMON FREAKLEY: Well, Brian, thank you for including me this morning. The truth is that retail as a sector is being profoundly disrupted, even before the pandemic came along. So pre-COVID, retailers we're dealing with extraordinary disruption in their sector, and there were winners and losers. A pandemic then came along, of course, and things ground to a halt.

And then, of course, it really depended on whether people had developed omnichannel strategies or online strategies, and we see the effect of both. So for instance, Amazon's sales have gone through the roof. Primark, who had no online strategy, just closed and made no sales for two months. There are winners and losers. But you're right, retailers are coming out of the pandemic. Those with the strongest leaders and the most deliberate strategies are making good progress.

ALEXIS CHRISTOFOROUS: So then what is your-- how do you guide these companies, Simon, those who maybe were very focused on brick and mortar? I mean, for instance, we just saw Lululemon out with earnings. Their online sales were through the roof, but it was hardly not even the beginning of enough to offset the drop they saw in their brick and mortar sales. What are companies like that supposed to do if they're already behind the eight ball by so much?

SIMON FREAKLEY: Yeah. What's so interesting, Alexis, if you look inside these companies, the ones that have omnichannel strategy, you say, well, they must be fine, right, because they can keep-- keep on making sales online. But what isn't obvious to people is that the cost of fulfillment, the marginal cost of fulfilling an order online is much bigger than the cost of selling an item in a brick and mortar store.

So for these companies where the revenues has stayed stable, or even potentially gone up, we've seen their EBITDA drastically going down because the cost of fulfilling those sales is so much higher. So what we advise our clients is to be very deliberate in terms of how they manage those strategies to make sure they not only maintain sales, but they also maintain earnings.

BRIAN SOZZI: Simon, I get the sense that you have pivoted the company a little bit to take advantage of opportunities in corporate litigation M&A. What's the next shoe to drop here? What should we--

SIMON FREAKLEY: Well--

BRIAN SOZZI: --be watching out for, not just in retail, oil and the gas-- oil and gas space, you name it?

SIMON FREAKLEY: Right. Well, of course, AlixPartners is probably most famous for its restructuring work, but Brian, that's less than 25% of what we do. The majority of what my firm does is support businesses through accelerated transformations, how they-- how they catch up and compete in their markets. And so a lot of this is about being agile.

A lot of it is about understanding how disruption is operating in their markets. And there are winners and losers in disruption, so how they capitalize on the disruptive forces, rather than just be the victim of them. And so a lot of it is about understanding the disruption in the sector and really finding the opportunities in that, being agile, making quick decisions, giving strong leadership.

ALEXIS CHRISTOFOROUS: Simon, I want to switch gears here for a moment and speak to something that I know is very near and dear to your heart, the outlook for the entertainment space. You're involved--

SIMON FREAKLEY: Right.

ALEXIS CHRISTOFOROUS: --with American Friends of the London Philharmonic Orchestra.

SIMON FREAKLEY: I am.

ALEXIS CHRISTOFOROUS: All of us wondering, you know, what's going to happen to the entertainment industry, especially live events, concerts, things like orchestras? What are you hearing being so intimately involved with the London Philharmonic?

SIMON FREAKLEY: Well, it's such a great question, Alexis, I mean, because nobody is going to get and sit in a theater anytime soon. So it's a dreadful state of affairs for Broadway, for concert halls, for theaters, for cinemas. And of course, on the one hand, nobody sitting in a-- in a cinema today. On the other hand, you know, Netflix and other online streamers are doing extremely well.

I think it's going to be extremely challenging. And the tragedy, of course, at the personal level here is that so many people in the entertainment business rely so heavily on the temporary work that is available. And so I think it's a pretty bleak outlook for the entertainment industry where physical audiences have to get together.

No orchestra around the world is playing together anytime soon. Maybe a bit of chamber music six feet apart. But I think it's a very challenging situation for any theater or audience-based business.

BRIAN SOZZI: All right, we'll leave it there. Simon Freakley, CEO of AlixPartners. Really, let's hope those orchestras come back. We can [? certainly use music. ?]

SIMON FREAKLEY: Thank you very much.

BRIAN SOZZI: Appreciate it.

SIMON FREAKLEY: Pleasure to be with you. Thank you.