Skip to content
Link copied to clipboard

Stores making adjustments

Squeezed buyers are cutting back, so stores are reducing inventory and increasing discounting.

NEW YORK - The latest reports from the nation's merchants show that higher energy and food bills and slumping home values are pressuring shoppers so much, they are being forced to nibble at the edges - buying single pillows rather than sets and opting for new paint instead of renovating.

With the consumer spending environment expected to remain rough for the rest of the year, major retailers are cutting back further on inventory, increasing discounting and focusing on their best customers.

But the weakening climate could also spell more store closings and layoffs in the second half of the year.

"Things are not getting any better," said Dan Ansell, a partner at Miami-based Greenberg Traurig L.L.P. and chairman of its real estate operations division. "It's the same theme of the strongest will survive, and the weakest will not, or at least will have to adapt."

This month, bedding and home furnishings retailer Linens 'n Things filed for Chapter 11 bankruptcy and said it would close 120 underperforming stores. Other chains that filed for bankruptcy reorganization this year include gadget seller Sharper Image Corp., which is selling all its assets to an investment group at auction; gift catalog and online retailer Lillian Vernon Corp., which is being acquired by Current USA Inc., and Wickes Furniture Co., a Wheeling, Ill.-based company owned by private investment firm Sun Capital Partners Inc.

Plenty of others stores, including jewelry retailer Zale's Corp., have shuttered units.

Burt P. Flickinger 3d, managing director of retail consultants Strategic Resource Group, expects that more than 10,000 stores across food, drug and apparel categories, or about 5 to 10 percent, of the total retail industry's sales volume, will shutter from now until 2010.

Mounting economic problems are dampening hopes among retailers that shoppers will be using their federal stimulus checks for anything but debt reduction and food.

Of more immediate concern to analysts is the unrestrained rise in the price of gasoline.

Many retailers are trying to ride out the economic storm by focusing on cost-cutting and sharpening their prices.

Talbots, which also operates women's clothing catalog J. Jill, plans to end the year with inventory down 20 percent. But company officials also said it would be targeting its best customers with specific events.

Wal-Mart Stores Inc. has stepped up its discounting but is also adjusting its merchandising mix around when consumers get their government paychecks, including Social Security and public assistance.

Gregg Steinhafel, Target's president and chief executive, told investors that the discounter was stressing its sale prices more in its advertising.

"We are just very mindful that the consumer is very cash-strapped right now and is looking for good values," Steinhafel told investors this week.