Save Your Money...

rimrocker · Dec 27, 2008

There are deals on the way... according to this, 25% of all major retailers have a chance of filing for bankruptcy soon.

Retailers Brace for Major Change
Chain Stores See a Future With Fewer Outlets, Brands -- and Thinner Profits

By RACHEL DODES, ANN ZIMMERMAN and JEFFREY MCCRACKEN
http://online.wsj.com/article_email/SB123033610871336369-lMyQjAxMDI4MzIwNzMyMzc2Wj.html

The good news for retailers reeling from the holiday sales season is that 2008 is almost over. 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.

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. The retailer is negotiating with lenders to avoid potential liquidation, say two people familiar with the matter.

A representative for Goody's was unavailable to comment. But 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. New retail formats and concepts stores are likely to be curtailed in the coming year. And luxury-goods makers already are working to cut the long lead times between orders and store delivery as a way to reduce risk.

"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% of their annual sales, Americans cut their spending. Total retail sales, excluding gasoline and autos, were down between 2.5% and 4% 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.

There were exceptions. Amazon.com Inc. said Friday its holiday sales exceeded all prior years. Still, 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. They and other retail watchers are forecasting big changes ahead:

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.

Analysts estimate that from about 10% to 26% of all retailers are in financial distress and in danger of filing for Chapter 11. AlixPartners LLP, a Michigan-based turnaround consulting firm, estimates that 25.8% of 182 large retailers it tracks are at significant risk of filing for bankruptcy or facing financial distress in 2009 or 2010. In the previous two years, the firm had estimated 4% to 7% 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. But 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.

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." A CIT spokesman declined to comment.

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. 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.

In turn, 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.

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. "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.

Despite the closures, the U.S. is still likely to see a net gain in square footage mostly due to projects under way before the credit crisis hit. Barclays Capital analyst Jeff Black says growth in retail square footage will slow to 5% in 2009 from 8% in 2008. 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. 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. Liz Claiborne Inc. is postponing store expansion until the economy improves.

Less Selection: Several department stores, including Saks Inc. and Neiman Marcus Group Inc., already have announced that they would narrow the range of merchandise they carry and drop vendors that don't perform. 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% 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% of sales from department stores, according to J.P. Morgan Chase & Co.

"We are so used to using history to guide our future," says Brendan Hoffman, chief executive of the 48-store Lord & Taylor chain. Setting inventory levels "will be a challenge until we get to some level of economic stability."

Meantime, Lord & Taylor, a unit of Hudson's Bay Trading Co. is buying conservatively, preferring to be out of stock on key items than over-stocked. Buyers at Lord & Taylor will purchase "deeper in merchandise we really believe in" and cut back on the rest.

As a result of such cutbacks, a number of smaller fashion brands that have thrived over the past decade as luxury boomed, are expected to struggle or fail. "There's no question that you are going to see bankruptcies in the designer world," says Peter Boneparth, a Kohl's Corp. director and former chief executive of Jones Apparel.

Contemporary clothing label Theory LLC, which had sales of about $600 million in 2008, already is planning to sell 25% less to retailers in 2009, says Andrew Rosen, the company's president and co-founder. "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. Long lead times, in part, are blamed for the inability of stores to respond quickly to the downturn.

"There's a focus on identifying what the key items are for the season and making sure that there is fabric and production capabilities more quickly," Mr. Burke says.

Fewer Concept Stores: Many retailers invented new brands to spur rapid growth in recent years. But many such concepts already are being abandoned or cut back. 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.

Closing unprofitable new store formats "is something investors would like to see," says Barclays' Mr. Black.
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Here's a chart from another article that makes the same point...

KingCheetah · Dec 27, 2008

I thought this was going to be a thread about the Magic Jack -- I was wrong.

updawg · Dec 27, 2008

I was hoping for a sale of snuggies.

damn

Fatty FatBastard · Dec 28, 2008

KingCheetah said:

I thought this was going to be a thread about the Magic Jack -- I was wrong.
Click to expand...

Really?

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Mr. Brightside · Dec 28, 2008

I was at Pac Sun the other day. Nearly everything was 50-70% off. It was fabulous!

MadMax · Dec 28, 2008

If you got gift cards, use 'em quick.

Mr. Mooch · Dec 29, 2008

MadMax said:

If you got gift cards, use 'em quick.
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Good point. Anybody know where the nearest Mervyn's is?

Asian Sensation · Dec 29, 2008

Translation: More job losses. Kinda hard to save money when you don't make money.

So lets say that the 73,000 stores do close in the first half of 2009 as the article suggests. Just to see the impact lets say each store has 10 people working there. That's 730,000 more people added to the unemployed sector. Keep in mind most of the people that work in retail/service probably worked in that segment there whole lives. You can't really count the college kids that come home for break and work for extra money. The point is it will be difficult for these people to get new jobs with limited skills, increased competition from others in the job market but more importantly the scarcity of retail/service positions steadily available. I used retail/service jobs as an example because that's what the article is stating but the bigger point is this is going to effect EVERYONE in one way or another.

No job= no money= can't pay for **** = eviction/foreclosure=mental stress= loss of self esteem= DEPRESSION.

Everybody should be thankful for what they have. We need help bad. I'm interested in seeing what kinda changes are in store with Obama.

wreck · Dec 29, 2008

Asian Sensation said:

Translation: More job losses. Kinda hard to save money when you don't make money.

So lets say that the 73,000 stores do close in the first half of 2009 as the article suggests. Just to see the impact lets say each store has 10 people working there. That's 730,000 more people added to the unemployed sector. Keep in mind most of the people that work in retail/service probably worked in that segment there whole lives. You can't really count the college kids that come home for break and work for extra money. The point is it will be difficult for these people to get new jobs with limited skills, increased competition from others in the job market but more importantly the scarcity of retail/service positions steadily available. I used retail/service jobs as an example because that's what the article is stating but the bigger point is this is going to effect EVERYONE in one way or another.

No job= no money= can't pay for **** = eviction/foreclosure=mental stress= loss of self esteem= DEPRESSION.

Everybody should be thankful for what they have. We need help bad. I'm interested in seeing what kinda changes are in store with Obama.
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i agree. everyone saving their money is what has halted the economy even further. i blame mostly the media for this, scaring people into not buying. whats the point of having great sales when there is no money to buy it with.

Ziggy · Dec 29, 2008

Nobody is spending money but you have to kill yourself for Wii Fit.

ima_drummer2k · Dec 29, 2008

A self fulfilling prophecy, thanks to the media.

pgabriel · Dec 29, 2008

ima_drummer2k said:

A self fulfilling prophecy, thanks to the media.
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you're right phil gramm

seriously ima, this isn't a snarky comment, but as someone who preaches personal responsibility I would think you would realize that consumer credit can't prop our economy up much longer.

bigtexxx · Dec 29, 2008

Asian Sensation said:

Everybody should be thankful for what they have. We need help bad. I'm interested in seeing what kinda changes are in store with Obama.
Click to expand...

More taxes on top of the mess. Change, indeed

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Save Your Money...

rimrocker Contributing Member

KingCheetah Contributing Member

updawg Member

Fatty FatBastard Member

Mr. Brightside Contributing Member

MadMax Contributing Member

Mr. Mooch Contributing Member

Asian Sensation Member

wreck Contributing Member

Ziggy QUEEN ANON

ima_drummer2k Contributing Member

pgabriel Educated Negro

bigtexxx Contributing Member

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