Over the past few years, sales growth at the top publicly listed European retailers has been a mere one or two percentage points above inflation; average EBIT have dropped to around 0.5 to 1.5 percent of sales. The short- to medium-term forecast doesn’t suggest any respite from these gloomy numbers. Changing consumer lifestyles and preferences, the Internet, and continued economic uncertainty are putting pressure on—and, in some cases, causing financial distress among—many traditional retailers.

There are broadly two types of distressed situations a retailer can face. One is a cash or liquidity crisis, requiring immediate cash-management and debt-restructuring measures. The other, which is trickier to detect, consists of a set of issues that may not threaten immediate bankruptcy but pose fundamental challenges to the sustainability of the business model. In this article, we discuss how to recognize—and emerge victoriously from—the second type, an undertaking we refer to as a “distressed turnaround.”

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