Disregarding Compliance: How Removal of Listing Undermines Business Recovery
In the ever-evolving world of business, the retail sector is currently undergoing a significant transformation. One of the main reasons for this change is the consolidation of publicly traded stocks, leading to a rash of delisting notices for several retailers. This trend was evident in 2020, when companies such as the German energy firm GASAG and Deutsche Bahn were discussed for privatization or structural changes. The aim was to move away from the pressure of the stock market today and enable significant investments and innovations. For instance, GASAG considered public ownership participation by the state of Berlin, while Deutsche Bahn saw plans for increased government investments and restructuring amid pandemic impacts. Eddie Yoon, the founder of EddieWouldGrow, believes that one-trick pony business models are increasingly disadvantaged, particularly for retailers. This sentiment is reflected in the recent case of Barnes & Noble, a retailer that was taken private. The decline in the number of publicly traded U.S. stocks over the years is another indicator of this trend. In 1998, there were approximately 8,000 publicly traded U.S. stocks, but by the end of 2017, this number had dropped to around 3,600. Companies that receive a delisting notice have a few options, according to Alon Kapen. These include seeking a sale, restructuring, or raising additional capital. Several retailers, including Stein Mart, Pier 1 (for the second time), and Ascena, are currently facing delisting notices. However, not all retailers are struggling. J.C. Penney regained compliance with stock exchange rules just days before press time due to its share price recovering on its own. Rite Aid and Francesca's are examples of retailers that have managed to sustain and grow their share price after executing reverse stock splits. A reverse stock split, which doubles the per-share price, can help retailers regain compliance with stock exchange rules. This strategy, however, was not without controversy. The Tile Shop, a retailer that went off the Nasdaq Stock Market as of Nov. 18 due to bankruptcy proceedings, initially considered voluntarily leaving the Nasdaq to save on costs. However, they withdrew due to a lawsuit from investors. The Telsey Advisory Group was surprised by Tile Shop's decision and suggested a pursuit of a sale as an alternative. The Nordstrom family also unsuccessfully attempted more than once to take their department store private. Interestingly, Eddie Yoon believes that publicly traded stocks are going through a 10-year phase of consolidation, where the fewer public stocks are getting bigger. This shift towards privatization allows retailers to better make fundamental changes, investments, and innovations without the spotlight of quarterly earnings. Target is among the few retailers that have been able to engineer a turnaround under the investor spotlight. Despite the challenges facing the retail sector, it remains to be seen how this trend of consolidation will continue to shape the industry in the coming years.
