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Dec-30-2008Fallout begins after dismal holiday season(topic overview)
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According to the International Council of Shopping Centers, retailers may close an astounding 73,000 stores in the first half of 2009 alone. Talbots Inc. (NYSE: TLB) and Sears Holdings Corp. (NasdaqGS: SHLD) have already revealed that they will be closing down under-performing locations. Dozens of retailers have sought bankruptcy protection this year as the credit crisis and recession dramatically cut sales. Amongst those who have already filed for bankruptcy protection are Linens n' Things Inc., Sharper Image Corp. (OTC: SHRPQ.PK), Circuit City Stores Inc. (OTC: CCTYQ.PK), and Steve & Barry's LLC. [1] Retailers will close 12,000 stores in 2009, according to Howard Davidowitz, chairman of retail consulting and investment-banking firm Davidowitz & Associates Inc. AnnTaylor Stores Corp., Talbots Inc. and Sears Holding Corp. are among chains shuttering underperforming locations. More than a dozen retailers, including Circuit City Stores Inc., Linens '''n Things Inc., Sharper Image Corp. and Steve & Barry'''s Llc., have sought bankruptcy protection this year as the credit squeeze and recession drained sales.[2] Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations. More than a dozen retailers, including Circuit City Stores Inc., Linens '''n Things Inc., Sharper Image Corp. and Steve & Barry'''s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger.[3] '''Consumers are going to get used to it, and it'''s going to very difficult for retailers to move forward in a full-price mode.''' More than a dozen major retailers ''' including Sharper Image Corp., Linens '''n Things Inc. and Circuit City Stores Inc. ( ) ''' have filed for bankruptcy protection this year, amid faltering sales and the global credit crisis.[4]
s iPhone on Dec. 28, is one of the country'''s few retailers still boosting sales. The discount retailer is one of two companies on the 30- member Dow Jones Industrial Average with shares gaining this year. More than a dozen retailers, including electronics chain Circuit City, have sought bankruptcy protection this year as the credit squeeze and the U.S. recession drained sales.[5]
Spending Pulse, an organization collecting consumer-spending data from MasterCard Advisors says consumers spent about 20 percent less on electronics, women's clothes and jewelry in November and December in comparison with the same period last year. It says total retail sales declined up to eight percent during this holiday season. A number of retailers have filed for bankruptcy protection after their sales dwindled following the global credit crunch.[6] U.S. retailers count on the holiday season for a third or more of annual sales. They'''re now scrambling for business as consumers retrench to cope with shrinking home and stock values, tightening credit and the highest unemployment rate in 15 years. Advertising post-Christmas sales before the holiday, as retailers did this year, '''really smacks a little bit of desperation,''' said Patricia Edwards, a retail analyst and the founder of Seattle-based Storehouse Partners LLC. The Standard & Poor'''s 500 Retailing Index has fallen 34 percent this year.[5]
"We will have a lot fewer stores by the middle of 2009," says Nancy Koehn, professor of business administration at Harvard Business School. "It's happening very, very quickly because of the financial crisis and the recession." During the holiday season, when retailers typically generate as much as 40 percent of their annual sales, Americans cut their spending. Total retail sales, excluding gasoline and autos, were down between 2.5 percent and 4 percent this holiday season, compared with the same period in 2007, according to MasterCard Inc.' s SpendingPulse unit. That makes it among the worst holiday seasons of all time, says Michael McNamara, a vice president.[7]
Dec. 28 (Bloomberg) -- Retailers counting on post-Christmas sales to spruce up the sluggish holiday season may be disappointed as tapped-out shoppers turn their noses up at discounts of 70 percent or more. '''This week isn'''t going to do it,''' Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said in a Bloomberg Television interview.[5] 'You'll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,' Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview.[8]
Burt P. Flickinger, managing director of New York consulting firm Strategic Resource Group, expects 2,000 to 3,000 U.S. malls and shopping centers to close in March and April.[9] "We are a little more than one-third of the way through a 1,000-day retail and shopping-center recession," said Burt Flickinger, managing director of the Strategic Resource Group, a retail-industry consulting firm in New York.[10]
ShopperTrak RCT Corp. which tracks retail sales and customer traffic at more than 50,000 outlets, said Monday that it now expects foot traffic to be down 16 percent and sales to decline 2.3 percent for the November and December period. The retail casualties, which were first among home furnishing stores and then many apparel stores over the past year or so, are expected to cut across all sectors as shoppers have slashed their spending on nonessentials, from TVs to jewelry. About 160,000 stores will have closed this year and 200,000 more could shutter next year, said Burt P. Flickinger III, managing director of consulting firm Strategic Resource Group. That would be the industry's biggest contraction in 35 years.[11] s December comparable-store sales index will drop an estimated 1.2 percent, or 5 percent excluding Wal- Mart Stores Inc. Retailers''' fourth-quarter earnings may fall 19 percent on average, the seventh consecutive quarterly decline, according to Ken Perkins, president of Retail Metrics, a Swampscott, Massachusetts-based consulting firm. Probably 50,000 stores could close without any effect on consumer choice, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said this month during a panel discussion held at Bloomberg LP'''s New York offices.[3] Retailers will close 12,000 stores in 2009, Howard Davidowitz, chairman of retail consulting and investment-banking firm Davidowitz & Associates Inc. told Bloomberg News.'' Retailers such as Ann Taylor, Talbots and Sears are among the many retailers expected to close underperforming stores, Bloomberg News reported. Britt Beemer of America's Research Group dubbed this''"the worst holiday retail season in four decades."'' He predicted a 2.8% drop in sales nationwide from last Christmas season. Citywide, the number of shoppers in stores Friday through Sunday fell 15% from a year ago, he said.[12]
Retailers will close 73,000 stores in the U.S. in the first half of next year, the article notes, and 'a wide variety of chains' will seek bankruptcy in February, according to Burt Flickinger with Strategic Resource Group, a retail research firm, who spoke on Bloomberg Radio.[8] U.S. retailers are facing a dire outlook in 2009 as tight credit and scared consumers could lead to mass store closings and bankruptcies. As many as 200,000 retailers could shut their doors next year, up from 160,000 in 2008, said Burt Flickinger, managing director of Strategic Resource Group, a retail consultancy.[13]
Among the most vulnerable are retailers that have debt coming due soon and had relied on solid holiday sales to generate cash, said Matthew Katz, managing director in the firm's retail performance improvement practice. He said he's also watching merchants whose debt is not due until later in 2009 or 2010, but are paying big interest payments as they struggle with high debt loads and shrinking revenues. Some of the retailers that analysts say they are watching carefully are struggling regional department store Bon-Ton Stores Inc., of York, Pa., and apparel retailer Goody's Family Clothing Inc., which filed for bankruptcy protection in June but emerged from Chapter 11 in October.[11] NEW YORK (AP) — The fallout from the horrific holiday season for retailers has begun, with the operator of an online toy seller filing for bankruptcy protection and more stores expected to do the same — meaning more empty storefronts and fewer brands on store shelves.[11]
The online retailer Amazon.com has boasted the best holiday season ever. Business news reports say consumer were buying fewer gift cards this holiday season for fear that companies going into bankruptcy would not honor them.[6]
The first retail casualty of the weak holiday season could be Goody's Family Clothing Inc., a Southeast apparel retailer. The 287-store chain emerged from bankruptcy court in October but its holiday sales were below plan and financing it was counting on didn't materialize, according to a person familiar with the situation.[7] Industry analysts say that online retail as a whole is down slightly from the year-ago holiday season. Retailers and their suppliers, who are hoping for a burst of sales this weekend and next week, are assessing the fallout to their industry.[7] Sales were off somewhere in the neighborhood of 4%. Since a typical retailer will make upwards of 40% of their annual sales during the holiday season, the fall in sales is nothing short of disastrous. All of this is likely to lead to a major restructuring of the industry.[14]
U.S. retailers face a wave of store closings, bankruptcies and takeovers after poor sales during the winter holiday season.[6] Dec. 29 (Bloomberg) -- U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.[3]
Sales at stores open at least a year may drop as much as 2 percent in November and December, the ICSC said Dec. 23. That would be the steepest decline since at least 1969. '''It is the worst kind of picture,''' Michael Niemira, chief economist for New York-based ICSC, told Bloomberg TV interview. Meg McGuire, a county health inspector in Eden, North Carolina, spent a third of the $1,200 she and her husband had budgeted for the holiday on bicycles, toys and other discounted items at Wal-Mart on Black Friday, as the day after the U.S. Thanksgiving holiday in November is known. The couple decided to not buy each other Christmas gifts for the first time in their 11 years of marriage. '''A lot of people are concerned about their jobs,''' said McGuire, 30.[5] Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the ICSC said last week, more than the previously projected 1 percent decline. That would be the largest drop since at least 1969, when the New York-based trade group started tracking data.[3]
Utilizing data from the U.S. Bureau of Labor Statistics, the ICSC predicts that 148,000 stores will close in 2008, which would be the largest number since 151,000 closings in 2001 during the last recession. The total number of retail stores will decline by 3 percent this year, also taking into account new locations that were opened this year. An additional 73,000 stores are anticipated to shut their doors in the first half of 2009, said the ICSC.[1] The ICSC predicts, using U.S. Bureau of Labor Statistics data, that 148,000 stores will shut down in 2008. That would be the largest number since 151,000 closings in 2001, during the last recession, according to ICSC Chief Economist Michael Niemira. The total number of retail establishments will decline by about 3 percent this year, also taking into account locations that were opened, he said.[3]
However, U.S. store closings may rise 25 percent next year, to about 200,000 nationwide from the record 160,000 closings anticipated in all of 2008, Ficklinger said. Howard Davidowitz, chairman of New York-based retail consulting and investment- banking firm Davidowitz & Associates Inc., told Bloomberg he expects 2009 will see about 12,000 store closings nationwide.[4] The abysmal holiday''sales may spur''consolidation and further bankruptcy filings, Gilbert Harrison, chief executive officer of retail advisory firm Financo Inc, told Bloomberg News. '''You'''re going to see deals that you never thought you were going to see before because of the necessity of both parties,''' Harrison said in a Bloomberg Television interview Dec. 26. The International Council of Shopping Centers tracking survey found that 6,387 stores had closed this year''as of Decemeber 10, and that this''number would likely hit''''6,600 for the year, as reported by Bloomberg News.''[12] Macy'''s Inc. slashed prices for diamond earrings in 14-carat white gold by 64 percent, while Circuit City Stores Inc. took $500 off a 40-inch high-definition television from Samsung Electronics Co. The discounts come as the International Council of Shopping Centers has projected the worst holiday sales decline in at least four decades. Mariel DeBernard was ready to be wowed by the sales when she turned up Dec. 26 at the Fashion Centre at Pentagon City mall in Arlington, Virginia.[5] November and December sales at stores open at least a year fell as much as 2 percent compared with the same period of 2007 ''' double the 1-percent predicted year-over-year decline ''' the International Council of Shopping Centers said last week.[4]
Last week, the ICSC estimated that sales for stores open at least one year declined 2 percent in November and December.[10]
NEW YORK ''' Weak holiday-season sales may spur a wave of store closings and bankruptcies in the New Year, retail-industry analysts predicted in interviews with Bloomberg News.[4] '''Retail overall is going to have a tough, tough time,''' said Patti Freeman Evans, an analyst at Jupiter Research in New York. '''It'''s going to be a slow road because there is not a quick fix to this situation.''' The Standard & Poor'''s 500 Retailing Index has shed 34 percent this year, with only two of its 27 companies gaining. The index doesn'''t include Wal-Mart Stores Inc., whose shares gained 16 percent this year before Monday.[2] The index doesn'''t include Wal-Mart, the world'''s largest retailer, which fell 24 cents to $55.11 at 4:02 p.m. in New York Stock Exchange composite trading. Wal-Mart shares have gained 18 percent this year.[3]
Lawrence Gottlieb, a New York bankruptcy attorney at Cooley Godward Kronish LLP says that only two retailers have successfully emerged from bankruptcy proceedings since the amendments to the code were passed. Because the debtor-in-possession market for financing bankrupt companies remains squeezed, many bankrupt retailers could quickly turn into liquidations as was the case earlier this year with chains Linens 'N Things, Mervyn's and Steve and Barry's.[7]
The dire problems facing retailers also spell bigger problems for suppliers, which have already been seeing merchants cut or cancel orders. Allan Ellinger, senior managing partner at New York-based MMG, an investment banking and strategic advisory practice, foresees a shakeout in the apparel industry and said those who survive are going to have a hard time meeting the financial needs of stores. He estimated that apparel companies have slashed their 2009 spring inventory by 20 percent to 25 percent from a year ago, because they would rather be reacting to hot sellers than be stuck with too much merchandise.[11] The bad news: The fallout in 2009 could be worse. This year's retailing slide when stores were forced to cut prices to convince wary consumers to spend promises to have a lasting impact on the way the retail industry operates. Many retailers are rethinking how they do business, as others prepared for a large number of bankruptcies and store closures.[7]
In the previous two years, the firm had estimated 4 percent to 7 percent of retailers then tracked were at a high risk for filing. Retailers are particularly vulnerable to a recession because of their high fixed costs. The most vulnerable retailers are those with debt coming due, says AlixPartners Chief Executive Fred Crawford. "There are companies in virtually every retail sector in distress, whether it's a jeweler or a high-end luxury store. If they have a lot of debt and it's coming due soon, that's probably a better predictor that they may need to file," said Mr. Crawford.[7] AlixPartners LLP, a turnaround consulting firm, predicts that 25.8 percent of 182 major retailers it tracks are either facing major financial distress or will face a significant risk of filing for bankruptcy in either next year or 2010 — the highest level in the 10 years that the firm has been compiling the figures. That compares with the 4 percent to 7 percent that it predicted would face financial woes in the previous two years.[11]
Discounts of 70 percent off or more by Macy'''s Inc., AnnTaylor Stores Inc. and other retailers failed to prevent a spending drop of as much as 4 percent during the final two months of the year, according to data from SpendingPulse.[2]
Chris Byrne, a New York-based toy consultant, said that etoys.com couldn't compete with the aggressive tactics embraced by Toys R Us and Wal-Mart Stores Inc., the nation's top two toy sellers. Retailers who do file for bankruptcy are also under more pressure now than in the past because of 2005 changes to the code that cut down the amount of time they have to file a complete reorganization plan, said Ken Simon, managing partner at Loughlin Meghji + Co., a restructuring advisory firm. Another big problem for them, Simon said, will be securing additional financing to keep operating because of the tight credit markets.[11] Retailers now face a rash of store closings, bankruptcies and takeovers beginning in the early new year.[1] Store Closings - Instead of growing sales via new stores, many retailers are cutting back on expansion and in some cases closing stores. Smaller Inventories - In an effort to control costs, retailers are cutting their inventories and offering shoppers less selection. This probably means that a lot of specialty designers are looking squarely at failure.[14]
The survival prospects for many more stores are dimming as more sales data comes in about the crucial holiday shopping season, which can account for up to 40 percent of a retailer's annual profit.[11] Excluding autos and gasoline, retail sales were down 2 percent to 4 percent during the holiday season, according to SpendingPulse, a division of MasterCard Advisors that tracks sales.[10] Holiday sales fell from 2 percent to 4 percent compared to a year ago, according to SpendingPulse, a division of MasterCard Advisors. Excluding gas and car sales, they dropped between 5.5 percent and 8 percent from Nov. 1 through Dec. 24, as key categories from luxury to electronics posted double-digit sales declines.[11]
If the horrific holiday retail sales are any indication, it's likely that Circuit City, Linens-n-Things, the Sharper Image and other chains that have sought bankruptcy protection in 2008 will be joined by many others next year.[10] Due to Wall Street woes and tight-fisted tourists, the amount of money spent could easily be down 30%. Many retailers such as Circuit City, Linens '''n Things and Sharper Image have already sought bankruptcy protection.[12]
Circuit City Stores Inc. filed for bankruptcy protection last month. It plans to keep operating, but toy seller KB Toys, which filed for bankruptcy earlier this month, is liquidating its stores and will shut down.[11]
Who might be headed for insolvency? The article is curiously devoid of any explicit candidates. Circuit City Stores ( CC ), Linens 'n Things (private), Sharper Image ( SHRPQ.PK ). and Steve Barry's LLC (private) all filed for bankruptcy this year, along with eight others, the article notes.[8]
The Talbots ( TLB ) is mentioned as one chain facing store closings expected next year, but it is not specifically mentioned as a bankruptcy candidate. The Gap ( GPS ). and Macy's ( M ) are mentioned as companies reporting results next month, but, again, no overt speculation as to their health.[8] A rash of store closings, which some experts predict will be the most in 35 years, is likely to cut across areas from electronics to apparel, shrinking the industry and leading to fewer niche players and suppliers.[11]
The cutbacks will ripple through the apparel industry, hurting the companies that are most exposed to the wholesale channel. Companies such as Jones Apparel Group Inc., for example, generate 50 percent of sales from department stores. Other manufactures, such as VF Corp., are less vulnerable because they have rolled out their own retail stores and realize only 10 percent of sales from department stores, according to J.P. Morgan Chase & Co.[7] Excluding the performance of Wal-Mart, whose sales increased significantly, the retail industry posted a record decline of 7.7 percent in November, the ICSC said.[10]
Including fuel, sales tumbled as much as 8 percent. That'''s the steepest drop since it started tracking the data in 2002, said Michael McNamara, MasterCard Advisors vice president of research and analysis. He estimates sales, excluding autos and gasoline, fell 2 percent to 4 percent from Nov. 1 to Dec. 24. That projection follows forecasts of falling sales from industry trade groups.[5] "December sales will be down by 1 percent (or possibly more) for the industry as a whole," the trade group said.[10]
"You are going to see a substantial retrenchment in the retail industry," said Rick Chesley, partner in the global bankruptcy and restructuring group at international law firm Paul Hastings. [11] Retail bankruptcies may help the industry in the long run, according to Flickinger. '''We'''ll be going from a Dickens-esque worst of times this December to the best of times in future Decembers because we'''ll rationalize out all the redundant retailers and retail space in shopping centers,''' Flickinger said.[3] '''There are a number that are real causes for concern.''' The trend may help the industry in the long run, he added, '''because we'''ll rationalize out all the redundant retailers and retail space in shopping centers.'''[4]
Some retail sectors likely to see growth include specialty teen stores while cutbacks are coming in the women's apparel sector. Already a number of specialty retailers have said they are closing stores, including AnnTaylor Stores Corp., Talbots Inc. and Charming Shoppes Inc. Those that aren't closing stores will likely curtail expansion to conserve capital.[7] Several turnaround experts said retail lenders including General Electric Co.' s GE Capital, CIT Group and Wachovia Corp. are dialing back lending to retailers. CIT, which lends money against vendors' receivables, recently withdrew coverage for orders to Bon-Ton Stores Inc., of York, Pa. Bon-Ton spokeswoman Mary Kerr said, "We are in the process of contacting those affected vendors with whom we have good relationships in order to work directly with them."[7] The report quotes a chairman of a retail consulting firm Davidowitz & Associates as saying that retailers will close about 12,000 stores in 2009.[6] Store Closings: The International Council of Shopping Centers estimates that 148,000 stores will close in 2008, the most since 2001, and it predicts that there will be an additional 73,000 closures in the first half of 2009. This underscores a sea change in retailers' business strategy.[7] The International Council of Shopping Centers (ICSC) projects that companies will close 73,000 stores during the first half of 2009. This will follow the closure of an estimated 148,000 stores during 2008. That was the highest number since 2001, when 151,000 stores shut their doors.[10]
Economists surveyed by Bloomberg in the first week of December forecast the world'''s largest economy will contract through the first half of 2009. The Standard & Poor'''s 500 Retailing Index has shed 34 percent this year, with only two of its 27 companies rising. [3]
The decline comes despite discounts of 70 percent or more at many retailers ''' an effort that may be backfiring, Patti Freeman Evans, an analyst at Jupiter Research in New York, told Bloomberg News. '''The situation is not going to right itself in January; it'''s going to be a long while that discounting'''s going to be around,''' she said.[4] '''THE SITUATION is not going to right itself in January,''' said Patti Freeman Evans, an analyst at Jupiter Research in New York, noting that consumers are getting used to deep discounts even at high-end stores.[4]
The retailer may continue to gain share in 2009, according to Laura Champine, an analyst with Cowen & Co. in New York.[2]
The cash-strapped Chicago company, which owns the Natick Collection and manages Boston's Faneuil Hall Marketplace under a lease with the city, in mid-November warned of a possible bankruptcy filing it if couldn't refinance 900 million in debt. It's now trying to sell its management rights for Faneuil Hall management rights along with two properties in New York and Baltimore.[9] Above, pedestrians pass a holiday window display at Macy'''s in New York City.[4]
The good news for retailers reeling from the holiday sales season is that 2008 is almost over. [7] U.S. retailers did not get the Christmas miracle that they were hoping for, with holiday sales shaping up to be the worst in four decades.[1]
The fallout from anemic holiday sales "has only just begun," said Joel Bines, a director in the retail practice of AlixPartners LLP, a global advisory firm.[10] There were exceptions. Amazon.com Inc. said Friday its holiday sales exceeded all prior years.[7]
"The consumer's shopping patterns are going to change from what we've come to know over the past few years," Mr. Rosen says. Smaller vendors are also adjusting the way they operate. Chantal Bacon, chief executive officer of designer Betsey Johnson's firm, said the brand is bringing its international sales in-house for the Spring 2009 collection to lower prices by cutting out a distributor. Robert Burke, chief executive of Robert Burke Associates, a luxury-goods consultancy, said he is working with clients to shorten lead times between orders and deliveries, which are typically six to nine months. [7] "Generally speaking the way retailers have grown is to get more volume, and open more stores," says Greg Maloney, chief executive of the retail practice at real estate services firm Jones Lang LaSalle.[7] The holiday results indicate possible consolidation and further bankruptcy filings, said Gilbert Harrison, chief executive officer of retail advisory firm Financo Inc.[5]
J. Crew Group Chief Executive Mickey Drexler said that the company is "revisiting all new store openings" and plans to cut square footage growth in half in 2009, excluding a new concept.[7] Next year, that will accelerate, Burt Flickinger, managing director of New York-based retail-industry consultancy Strategic Resource Group, told Bloomberg Radio today.[4] Only retailers with healthy balance sheets will survive the recession, according to Matthew Katz, a managing director at consulting firm AlixPartners LLP.[2]
Probably 50,000 stores could close without any effect on consumer choice, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said.[2] Bloomberg financial news service reported Monday that clothing retailers Ann Taylor and Talbots are among the chains planning to close underperforming stores.[6] '''You'''ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out. There are a number that are real causes for concern," he said in an interview with Bloomberg Radio on Monday.[1]
More Bankruptcies loom for U.S. retail chains, according to an article on Bloomberg today.[8] Bankruptcies will abound," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based national retail consulting and investment banking firm.[10] T he current spate of retailer bankruptcies and those expected in the new year - along with still-healthy companies limiting or stopping their expansions - could have a ripple effect on the commercial real estate market.[9] More Bankruptcies: Corporate-turnaround experts and bankruptcy lawyers are predicting a wave of retailer bankruptcies early next year, after being contacted by big and small retailers either preparing to file for Chapter 11 bankruptcy protection or scrambling to avoid that fate.[7] Officials from Bon-Ton and Goody's did not immediately return calls seeking comment. This week Parent Co., the operator of etoys.com ]] etoys.com, filed for Chapter 11 bankruptcy protection and said it will consider selling some or all of its operations.[11]
As frozen credit markets refuse to thaw, the cost of default protection on corporate bonds reaches new global records amid investor concerns the credit crisis will trigger corporate failures as companies struggle to finance their businesses. Interbank lending remains limited, and borrowing from the Fed's expanded discount window continued its trend of setting new highs every week, as the total daily average rose to $420.2B vs. $367.8B last week. [14] Closing unprofitable new store formats "is something investors would like to see," says Barclays' Mr. Black.[7] New retail formats and concepts stores are likely to be curtailed in the coming year.[7] Wal-Mart Stores Inc., which isn'''t in the retail index, has climbed 16 percent after it successfully lured customers with lower prices.[5] The victims are not going to be just the retail stores but will include the whole infrastructure surrounding the industry.[14] The most dramatic pullback in consumer spending in decades could transform the retail landscape, as thousands of stores and whole malls close down.[11]
"The key is that the consumer is in the worst condition since the Great Depression," Mr. Davidowitz said. After going on a borrowing binge and spending an average of 6 percent more than they earned during each of the past five years, consumers are $13 trillion in debt and are now suffering through the worst housing and credit crises since the 1930s, Mr. Davidowitz said.[10]
"The easiest way of looking at which shopping centers or (real estate investment trusts) are real cause for concern for potential reorganization would be any whose stock has declined 80 or 90 percent or whose stock is trading in the 1 to 5 range," Flickinger said.[9] Contemporary clothing label Theory LLC, which had sales of about $600 million in 2008, already is planning to sell 25 percent less to retailers in 2009, says Andrew Rosen, the company's president and co-founder.[7] Analysts estimate that from about 10 percent to 26 percent of all retailers are in financial distress and in danger of filing for Chapter 11.[7] Barclays Capital analyst Jeff Black says growth in retail square footage will slow to 5 percent in 2009 from 8 percent in 2008.[7] Deepened retail discounts failed to prevent a spending drop of as much as 4 percent during the last two months of 2008, according to data from SpendingPulse, owned by MasterCard Advisors.[5] Initial estimates from SpendingPulse revealed huge declines in major retail sectors: 23 percent in women's apparel, 13.5 percent in footwear, 14 percent in men's clothing and 27 percent in electronics and appliances.[10]
Already reeling from an oversupply of retail space, growing vacancies and falling rents, a failure rate of 25% for existing retailers would be a heavy blow to the retail commercial real estate business. [14] Fewer Concept Stores: Many retailers invented new brands to spur rapid growth in recent years. Many such concepts already are being abandoned or cut back.[7] Bankruptcies - Retailers are being squeezed not only by a lack of profitability but also by a lack of financing. Many traditional lenders are dialing back on their exposure to the industry leaving some retailers with no choice but to seek protection in Chapter 11.[14] Analysts expect prolonged woes in the industry as the dramatic changes in shopping behavior could linger for another two or three years amid worries about the deteriorating economy and rising layoffs.[11]
Neiman Marcus said it would postpone plans to expand its Cusp store concept. Pacific Sunwear of California Inc. closed down its d.e.mo. stores earlier this year, and AnnTaylor abandoned plans for a "modern" baby-boomer concept.[7] "A lot of companies are on the cusp," Mr. Davidowitz said in an interview. He specifically referred to Bon-Ton Stores Inc. and Pier 1 Imports.[10] Not mentioned in the article but of importance is the effect that the store closings will have on commercial real estate.[14] As of December 10, announced store closings based on the ICSC'''s tracking survey reached 6,387.[2]
Recent changes in the bankruptcy code make it more difficult for retailers to emerge from bankruptcy reorganization. The changes, passed in 2005, shortened to 210 days the time retailers have to determine whether or not to assume real-estate leases, limiting the amount of time they have to complete their restructuring. [7] So many retailers and property owners are either "retracting or collapsing" at the same time that there's insufficient credit to save every one, according to Flickinger. "It's a natural falling out," he said.[9]
A representative for Goody's was unavailable to comment. In October, Chief Executive Paul White was upbeat about its prospects, saying "we are energized by the opportunity in front of us and are focused on continuing to fulfill the Goody's mission." Other retailers are saying they will trim inventory and reduce the number of suppliers. That, in turn, will cause a ripple effect, prompting a number of weaker manufacturers, small brands and underfunded fashion labels to fail.[7]
SOURCES
1. Horrendous Holiday Sales Likely to Force 73,000 Stores to Close in the First Half of 2009 | Cleveland Leader
2. Holiday sales slump to force closings, bankruptcies of US retailers
3. Bloomberg.com: Worldwide
4. Holiday sales slump may fuel wave of closings - Providence Business News
5. Bloomberg.com: Worldwide
6. VOA News - Poor Holiday Sales in US Force Retail Store Closures
7. Retailers brace for major change - The Herald Dispatch
8. Stocks To Watch Today : Bloomberg, FT: Bankruptcies Loom in February for Retailers
9. Closings would roil real estate market - BostonHerald.com
10. Washington Times - Closings loom for big-name stores
11. The Associated Press: Fallout begins after dismal holiday season
12. Retailers such as Ann Taylor, Sears and Talbots face store closings, bankruptcies, takeovers in 2009
13. FT.com / Companies - US retailers face grim outlook
14. Retail's Changing Face - Seeking Alpha
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