Gloomy forecast for retail in 2009
Thousands of store closings are predicted, and entire shopping malls could shut down.
After perhaps the slowest holiday shopping season in 35 to 40 years, U.S. retailers face a wave of store closings, bankruptcies and takeovers starting in January.
As many as 73,000 stores may be shut in the first half of 2009, according to a new forecast from the International Council of Shopping Centers. Among the chains already planning store closings: Sears Holdings Corp. and Talbots Inc.
The closings are likely to cut across a wide range of categories, including electronics and apparel, and will lead to fewer niche retailers and suppliers.
"You'll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi-regionally or nationally go out," said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York. "There are a number that are real causes for concern."
The most dramatic pullback in consumer spending in decades could transform the retail landscape, as thousands of stores and whole malls close down. Analysts expect prolonged woes in the industry as the dramatic changes in shopping behavior could linger for two or three years amid worries about the deteriorating economy and rising layoffs.
"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. "The downturn has been catastrophic."
A number of stores couldn't even make it to Christmas. Circuit City Stores Inc. filed for bankruptcy protection in November. 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.
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.
Holiday sales are down 2 percent to 4 percent from a year ago, according to SpendingPulse, a division of MasterCard Advisors.
The retail casualties, which began among home-furnishings stores and then many apparel stores over the last year or so, are expected to cut across all sectors as shoppers have slashed their spending on nonessentials, from TVs to jewelry.
In March and April of next year, Flickinger said, he expects 2,000 to 3,000 malls to shutter.
AlixPartners L.L.P., 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 either next year or in 2010 - the highest level in the 10 years that the firm has been compiling the figures.
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. But he said he's also watching merchants whose debt is not due until later in 2009 or 2010.
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. Officials from Bon-Ton and Goody's did not immediately return calls seeking comment.
Since Christmas, Parent Co., the operator of online toy retailer etoys.com, filed for Chapter 11 bankruptcy protection and said it would consider selling some or all of its operations.