Tuesday, December 30, 2008


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.

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. Ann Taylor, Sears and Talbots, among many others, have been closing underperforming stores.

“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.

“We’re going to have a major collapse in retail. Bankruptcies will abound,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based national retail consulting and investment banking firm.

“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.

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.

“There will certainly be a number of high-profile retail bankruptcies in early 2009,” said Mr. Bines, who declined to offer specific names. “Everybody will have heard of these companies.

“More boardrooms than people think are having discussions about preparing for a potential bankruptcy filing.”

Mr. Bines emphasized that bankruptcy was merely a process. Given the state of the capital markets and the retail markets, many of these bankruptcies will turn into liquidations rather than restructurings, he said. The credit markets are so tight that the debtor-in-possession financing upon which bankrupt companies rely will be very difficult for many insolvent retailers to obtain.

Last week, the ICSC estimated that sales for stores open at least one year declined 2 percent in November and December. 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. “December sales will be down by 1 percent (or possibly more) for the industry as a whole,” the trade group said.

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. 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.

The future for retailers will not be getting better any time soon, analysts said.

“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.

Noting that credit-card defaults are approaching record levels and job losses have been soaring in recent months, Mr. Flickinger also cited the $10 trillion in net worth that withered away in 2008 from stock portfolios, 401(k) retirement plans and home equity.

If consumers can’t spend, retailers can’t sell. By Mr. Flickinger’s estimate, the retail and shopping-center recession still has nearly two years to go, guaranteeing that bankruptcy courts will be busy well into next year and beyond.

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