During this pandemic, many brands are being squeezed. Many large retail chains are closing their stores and seeking protection under bankruptcy laws. Eventually, many of these will face liquidation or reorganization of their IP assets. So, the question becomes: How does this situation affect the valuation of their brands and other IP? Let me begin by going back in time to the last economic crash. Ten years ago, there were many versions of what is happening now to brick-and-mortar stores, particularly in retail. In that last round of economic recession, our firm helped to liquidate companies like Montgomery Ward, Circuit City, Service Merchandise, and several others.
In liquidation, what happens to the asset portfolio including trademarks and tradenames? Well, one thing we learned from the last round of distressed sales is that once a brand disappears, it’s gone. It is remarkable how quickly the public is willing to forget companies like Pier 1 or Lord & Taylor. Consumers while they would like to be loyal to the brand, when the brands are gone, they are gone, and the consumer quickly moves on. Their value in a sale is often relatively de minimus. Many end up selling their brand and trademark assets to an online company, the way the Gump’s did, a luxury home furnishings and home décor retailer founded in 1861. Gump’s is purely digital now.
But what about the companies who own patents and other technologies? They can better weather the pandemic because technology will continue to drive growth and earning. Patents can be more valuable in this market than brands and trademarks. Websites and domain names, however, lose a great deal of value in a reorganization or bankruptcy. Unless there is substantial e-commerce presence for a retailer, domain names can become essentially worthless, and websites that have not been particularly well built will disappear quite quickly. However, with about 50 chains in reorganization or liquidation, the values and the prices of brand assets are dropping across the board values and the prices of brand assets are dropping across the board.
Companies are looking to their patents and technology advantages to increase efficiencies, so we believe patent values will increase and we are seeing a trend that supports that. However, there is some bright news on the trademarks and brand assets front — those retailers that will make a shift in their consumer interaction will be able to adapt more quickly. In other words, making a shift to more delivery-based model retailing and less in-person models. Those brands that make that shift quickly and effectively will increase in value over time, and those which do not adapt will certainly decrease in value.
Finally, the pandemic has not caused anything to happen that was not already going to happen — but it has intensified and magnified the effects in the marketplace. What the pandemic has done is accelerate what was going to occur. The retail industry was facing hard times long before the pandemic arrived; but it substantially worsened the situation for most brick-and-mortar stores. So, the pandemic is forcing changes to happen at a much more rapid pace than would otherwise be true.