Comment: Restructuring in retail – the foundation on which IPOs are built | Opinion

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With the window for retail IPOs now well and truly open, at least for the time being, the list of potential floats now appears to stretch out well into the second half of 2014.

Yet overall there appears to be little consistency in the current IPO story. Online (Ao.com and Boohoo) and value (Poundland and B&M) represent two investment themes but others in the running appear to have little in common.

They range from convenience (McColls) and a traditional department store (House of Fraser), to clothing (Fat Face) and speciality (Pets at Home).

The cynical press draws attention to private equity houses taking the opportunity of a buoyant market to cash in – many of them were touted as float candidates in the short 2009 market window but ended up as private equity acquisitions instead - but shows little interest in what has been happening to those businesses in the intervening period.

Many of them have been streamlined and expanded in their period out of the public eye. Other 2009 candidates, like New Look and Matalan, are still undergoing that process.

But comment on the current crop of IPOs has totally overlooked one rather obvious point - the role of radical restructuring in contributing to a renaissance in many sectors of the retail industry over the last five years.

Although UK insolvency legislation is currently under attack from all sides (the Comet enquiry, the overruling of Goldacre and Luminar in the landlords’ recent case and Teresa Graham’s review of pre-pack administrations), we shouldn’t forget the part formal restructuring has played in the coming to market of many of the current IPO crop.

Bonmarché was given room to breathe away from Peacocks as part of a formal administration process, shedding a ‘badco’ of over 100 stores. Whilst it remains to be seen whether Game will make it back to the market, it too was able to complete a deep restructuring in insolvency, closing about 275 stores. Fundamental right-sizing of the retail portfolios rather than just deleveraging of the balance sheets was crucial in both these situations.

Other IPOs have also benefitted, albeit more indirectly, from formal restructuring processes which have both removed major competitors and provided a treasure chest of suitable new locations.

Both Poundland and B&M, for example, have taken the opportunity to scale up their portfolios on the back of vacant sites and market opportunities freed up by the insolvency of a variety of operators, most notably, of course Woolworths.

Driven by a sharp decline in the need for physical space, we have seen an unparalleled level of non-food retail capacity withdrawn from the UK.

Focus the number three DIY player, Comet the number two consumer electricals retailer, JJB the number three sports specialist not to mention Peacocks, Republic, Clinton Cards, Blockbuster, HMV and so on. Our estimates suggest that in excess of 20m sq ft of non-food retail space has been freed up over the period .

This has two other positive effects; it provides much needed oxygen to the stronger players in a sector (Dixons is a good example of the last man standing syndrome), and secondly it encourages innovative new formats to fill the space in the market (AO and Moonpig among others).

As a result, UK insolvency laws have facilitated the right environment for UK retail to address deep structural challenges much faster and more effectively than in mainland Europe where, in contrast, a similar much-needed once in a generation clean-up is only just underway.

In many European countries, notably Germany, Italy and Spain, this is happening against the backdrop of antiquated and more cumbersome insolvency regimes.

Too often, the UK distressed retail world gets a bad rap but occasionally we need to highlight the fact that it can be a real force for good.