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Lending to a Retail E-Commerce Enterprise -- What You Should Know

Date: Sep 02, 2015 @ 07:00 AM
Filed Under: Retail

Key performance indicators, as well as overall sales performance, are the primary metrics used when determining the amount of product to be sold through the online channel. The model must also project liquidation expenses, which typically include online marketing and other costs associated with selling to consumers online under normal operating conditions.

The model assumes customers would be attracted to the sale website via existing advertising programs and pay-per-click schemes currently in use by the company. Content would, of course have to be tailored to the sale event. More focused e-mail blasts and selected advertising as employed by the liquidator would also be built into the model. Finally, the appraisal/liquidation model should include a provision for the disposition of less-desirable inventory remaining unsold as the sale event moves toward completion.

Conduct Due Diligence to Mitigate Risk

A lender must carefully monitor several key areas of the retail e-commerce borrower’s operations to ensure that, in the event of a liquidation sale, risks have been effectively mitigated. It is advised to pay particular attention to the following:

1.    Regarding the website(s):
a.    Is the entire e-commerce platform being properly maintained?
b.    Is the technology being upgraded as it evolves?
c.    Would the website be transformable into a viable sale channel in the event a sale is required?
d.    Are all designs associated with the company’s products, as currently being sold or as would be sold to generate revenue in the event of a liquidation, free of creditor and vendor liens?
e.    Would all products be freely accessible to the liquidator?

2.    Regarding intellectual property:
a.    Would all intellectual property be unencumbered at the time of a liquidation sale?
b.    Would all corresponding domain name registrations be up-to-date and paid through the end of a potential sale period? Should a domain registration lapse, a third party could claim the domain name for itself. Losing ownership of the domain name would likely make it unavailable for use during a sale.
c.    Would customer contact information be readily available and usable (see #4, below)?

3.    Regarding Website Staffing, Hosting and Servicing:
a.    Most e-tailing websites are operated using a hybrid system of internal staffing and outsourced web design and hosting. Rarely is a website managed entirely by an in-house staff. Therefore, the lender must carefully monitor employee staffing as well as web design and server hosting contracts. All agreements must be current, paid to the date leading up to a sale and paid through the end of a sale to ensure servers and content are available for use.

4.    Regarding Customer Data:
a.    It is important to understand the scope and nature of customer data and where it is stored? Is the server owned by the company or by a third party?
b.    The liquidator must be able to communicate with customers, therefore, if customer data is stored with a third party are all agreements current, paid to date leading up to a sale, and paid through the end of the sale, to ensure the data is available for use.

Properly appraised and monitored, a retail e-commerce business should entail little or no additional risk for a lender than a traditional brick-and-mortar retailer. So long as (1) a viable disposition channel exists, (2) the nature and salability of the inventory is understood by the lender, and (3) the operational aspects of the business are carefully monitored, then maximizing the value of the inventory in a liquidation sale should be achievable with a high degree of certainty.

Tim Anderson
Senior Vice President | Hilco Valuation Services, LLC
Tim Anderson joined Hilco Valuation Services in 2001. He has conducted and managed thousands of appraisals on behalf of lending institutions worldwide. These valuations are comprised of retail, wholesale and industrial operations in most key markets. Anderson’s tenure at Hilco provides a diversified background to assist these institutions in recognizing collateral value and potential exit strategies for their portfolio companies.

Anderson currently oversees consumer and retail appraisal operations. He is responsible for the overall vertical growth while ensuring the delivery of high quality, dependable services to clients. He also specializes in developing and enhancing client relationships for the New England region.

Prior to joining Hilco, Anderson worked with GE Plastics, where he was a graduate of the GE Financial Management Program. He holds a bachelors degree in Finance and Accounting from the University of Massachusetts, Amherst, MA.

About Hilco Global:

Hilco Global ( is an independent and diversified financial services company and the world’s preeminent authority on maximizing the value of assets for both healthy and distressed companies. Hilco Global operates as the holding company comprised of over twenty specialized business units that work to help companies understand the value of their assets and then monetize that value. Often, Hilco Global acts as an advisor to provide consultative services in all aspects of the asset management process. Hilco Global has a successful 28-year track record of acting as an advisor, agent, investor and/or principal in any transaction. Hilco Global works to deliver the best possible result by aligning interests with clients and providing them strategic insight, advice, and, in many instances, the capital required to complete the deal. Hilco Global is based in Northbrook, Illinois and has 500 professionals operating on five continents.
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