One in Five North American Public Companies Remains Under Financial or Operational Stress, BCG Research Shows

While Corporate Stability Is Returning Following Height of Pandemic, Stress and Distress Still Define Huge Segments of Media, Fashion & Luxury, Retail, Oil & Gas, and Travel Industries

“Companies in North America have grown more stable since September 30, 2020. Demand is returning because of vaccinations and other measures. Equally important, many companies acted decisively to shore up their cost bases during the pandemic. And on a macro level, strong capital markets and aggressive monetary and stimulus moves have helped companies,” said Luke Pototschnik, BCG senior partner and head of the firm’s Transformation practice and BCG TURN in North America

Despite the apparent recovery from the effects of the COVID-19 pandemic, about 22% of North American public companies were not financially or operationally stable at the end of the first quarter of 2021, according to new research from Boston Consulting Group (BCG).

Of these companies, 20% were stressed, meaning underperforming industry peers or experiencing pressure from internal or external sources, and 2% were distressed, meaning having trouble meeting financial obligations or experiencing severe operational challenges. The results, current as of March 31, are based on the BCG TURN Radar index, which tracks the financial and operational performance of public companies using more than 20 forward- and backward-looking financial and stock market performance indicators and qualitative gauges. The index was developed by BCG TURN, BCG’s special transformation, turnaround, and restructuring unit.

Nevertheless, the trajectory is positive: as of the end of the third quarter of 2020—mid-pandemic—about 32% of North American public companies were not in the stable category (27% stressed, 5% distressed). In other words, there was a 10-percentage-point increase in the proportion of stable companies over the six-month period ending March 31, 2021.

“Companies in North America have grown more stable since September 30, 2020. Demand is returning because of vaccinations and other measures. Equally important, many companies acted decisively to shore up their cost bases during the pandemic. And on a macro level, strong capital markets and aggressive monetary and stimulus moves have helped companies,” said Luke Pototschnik, BCG senior partner and head of the firm’s Transformation practice and BCG TURN in North America.

Stress and Distress Still Significant in Media, Fashion, Retail, and Travel Industries

“But BCG Radar data also show that a great number of public companies, concentrated in a handful of industries, remain under real stress. For many of them, the pandemic accentuated or hastened an existential inflection point that was already on its way,” Pototschnik added.

According to the data, as of the end of the first quarter of 2021 in North America:

  • 38% of media companies were stressed or in distress
  • 37% of fashion and luxury companies were stressed or in distress
  • 36% of oil and gas companies were stressed or in distress
  • 32% of travel and tourism companies were stressed or in distress
  • 27% of retail companies were stressed or in distress
  • 23% of materials and processing companies were stressed or in distress

There have been some improvements within these industries since mid-pandemic. At the end of the third quarter of 2020, 69% of fashion and luxury companies were stressed or in distress and 53% of media companies were stressed or in distress.

However, as of March 31, 2021, 8% of fashion and luxury companies, 6% of media companies, and 4% of retail companies were in actual distress, according to the index.

Many Companies Require a Fundamental Reset—and the Ability to Fund It

“In some industries—travel, for instance—the situation may be macro-driven, and demand will strengthen as the pandemic abates. However, in other industries where there are many unstable companies, key players will require a fundamental reset in how they go to market and how they operate. It will not be an easy fix,” Pototschnik said.

“The pandemic dramatically revealed and accelerated shifts that were already underway in how people use digital media, how they shop, and the kind of clothing and other items they’ll seek,” he added. “The rub for many companies is that they will have to do more than design a fundamental, top-line transformation. Despite their stressed financial and operational position, they will also need to unlock the funding to recruit the right talent and develop the management systems to really pivot the business and sequence the right bold actions. It’s a tall order.”

Media Industry

Neal Zuckerman, BCG senior partner and member of the Strategy and Technology, Media & Telecommunications practices, cited the example of the media industry. Viewers have increased the amount of time they spend watching TV or streaming video and plan to continue to watch and stream more after the pandemic. But, at the same time, the number of services they subscribe to hasn’t increased.

“Despite this dynamic of more watching without more subscribing, media companies continue to organize themselves largely as they did 10 or 20 years ago, with each channel or streaming service constituting its own profit center. It’s not unusual for one company to maintain up to a dozen largely siloed business units. Not only is this model enormously expensive, but it also undermines the programming synergies that can be achieved with a collaborative cross-distribution channel approach. Smart media companies are starting to rethink their organizations, budgets, and operating models,” Zuckerman said. “That kind of fundamental change is key to media companies reversing the stress and distress mounting in their industry.”

Fashion and Luxury Industry

The fashion and luxury industry, which remains stressed, faces the same inflection point. “As the light begins to appear at the end of the pandemic tunnel, luxury brands need to rethink what, when, where, and how they sell,” said BCG senior partner Christine Barton, member of the Transformation, Marketing, Sales & Pricing, and Consumer practices.

“Many need an operating model transformation that right-sizes multiple traditional investment areas and reinvests the savings in digital, marketing, and data analytics capabilities. Doing that can help speed and focus commercial decision making, deliver a reduction or reallocation of 10% to 30% in costs, and provide visibility and control for capital stewardship. Further, tools and analytics can help fashion and luxury companies engage customers more meaningfully and allow them to offer digital styling, seamless purchases, and post-purchase relationship management. Those efforts have proven to lift net sales by 10% to 15%. In most cases in this sector, investing in these areas is a must,” Barton said. “It also frees up time and expense for reinvestment in creativity, innovation, and product.”

Stability and Company Size

The BCG TURN Radar index shows that large public companies in North America have overall been somewhat more stable through the pandemic than smaller ones. Pototschnik suggests that this situation may lead smaller firms to diversify geographic risk, even within countries.

“Bigger companies have the scale to be more diversified. And one issue that came into play during the pandemic was geographic risk—not just country risk, but risk within regions or even states. Supply chains and demand were variable within regions, something companies probably never planned for. Now, companies of all sizes will probably be building this kind of geographic risk into their planning,” Pototschnik said.

For media inquiries, please contact Michael-Jon Romano at michael-jon.romano@allisonpr.com.

About BCG TURN

BCG TURN is a special unit of BCG that helps CEOs and business leaders deliver rapid, visible, and sustainable step-change improvement in business performance while strengthening their organizations and positioning them to win in the years ahead. BCG TURN helps organizations change their trajectories by turning their upside potential into radical performance gains. The BCG TURN team consists of transformation practitioners and battle-tested experts with a proven track record in large-scale transformation. BCG TURN is invested in the sustainable success of clients, with a focus on performance acceleration and a commitment to value delivered.

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