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Slower Retail Sales Leading to More Bankruptcies

The Consumer is Pulling Back

Posted April 15, 2008 at 1:51PM

 

 

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In a post a couple of months ago I talked about how the slowdown in consumer spending was bleeding into commercial real estate.

It referenced a story by Costar.com., a leading source of commercial real estate information.

They had taken the pulse in retail real estate and had discovered more store closings and slowed expansion plans than they had seen in quite  a long time.

The story quoted Rob Plaza, a retail analyst who told CoStar the following about the environment in retail these days:

"I think we're going to see store closing announcements, like we have over the last two months, keep coming for the rest of the year. Some companies are doing it to increase profitability; some are doing it just to stay alive.

I started to talk about this slowdown in the third quarter of last year; but at that point, a lot of retailers already had their plans for 2008 laid out, had already invested in signed leases, ground-breakings, pre-opening, etc, so they couldn't just stop those new stores on a dime.

Looking back on that, they're going to wish they had just walked away and paid whatever it would have cost them to stop the process."

Of course, the list of big names in the business that had decided to scale back was pretty alarming.

It  included among many others: Movie Gallery closing another 400 stores; Starbucks closing 100 stores and slowing expansion plans by 34%; Ann Taylor shuttering 117 stores and slowing store growth; Sprint Nextel closing 125 stores and 4,000 distribution points; Liz Claiborne closing 54 Sigrid Olsen stores; Ethan Allen closing 12 stores; PacSun closing all of its 173 demo stores; Talbots exiting its kids and men's lines through the closure of 78 stores; Rite Aid exiting Nevada by closing 28 stores; Macy's closing nine stores; Krispy Kreme expecting many franchisees to close stores; CompUSA's remaining 103 stores being disposed of; Rent-A-Center closing 280 stores; 84 Lumber closing 12 stores; Home Depot closings some call centers; Levitz Furniture disposing of 76 stores in bankruptcy; and Pep Boys closing 31 stores.

Said Nina Kampler, Executive VP of Strategic Retail for Hilco Real Estate: "Absolutely. This is the largest number of retailers who have announced store closings in my professional experience. I think we're at the beginning of the downtrend in the retail economy."

Two months later, it has only gotten worse. Store closings have now turned increasingly  into bankruptcies.

Here's the rest of the ongoing story from The New York Times.

It is a story by Michael Barbaro entitled: Retailing Chains Caught in a Wave of Bankruptcies

"The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains - as diverse as the furniture store Levitz and the electronics seller Sharper Image - have filed for bankruptcy protection as they staggered under mounting debt and declining sales.

But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

"You have the makings of a wave of significant bankruptcies," said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company's interim chief financial officer and works at a corporate turnaround firm called AlixPartners.

Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-short chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.

When it filed for bankruptcy, Sharper Image owed $6.6 million to United Parcel Service. The furniture chain Levitz owed Sealy $1.4 million."

 

Retail sales, by the way, were off again last month according to the data released just yesterday.

In fact, excluding autos, gas stations and restaurants, retail sales fell 0.9 percent from a year ago.

And as usual the retailers were quick to blame it all on anything that they could find, ranging from the weather to an early Easter.

The truth, however, is much closer to home.

Wallets everywhere seem to be slamming shut these days

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