#4 Retail: To that end, 5 major "name brand" bankruptcies will occur in national retail chains by Memorial Day 2009; these are names even the casual shopper will know (ala Circuit City). America will continue "right sizing" it's overbuilt retail space - unfortunately, the real damage will be unseen as it will be in the scores of "mom and pop" 1 off retail establishments. Strip malls in many communities will sit 1/2 empty. A sampling of traditional malls across the country shall shutter as vacancy rates increase substantially.
... and the conventional media has finally caught up to the curve. Forbes has come out with a list of some names that might be getting the boot in the months ahead. This was a shocking revelation - 1/3rd of American women plan to buy no clothes in 2009? While I doubt that will happen, the fact that 33% even "think" like that points to a sea change we've been advocating in the way Americans think. [Dec 29: What Happens if America Returns to a Historical Savings Rate?]
This will be far more than a recession; this will be a wholesale forced change in attitude. [Sep 20: US News & World Report - The End of the Shopaholic Nation?] [Jul 5: Bloomberg: Teenagers Skip $50 Jeans in Squeeze of Gas, Job Shortage])
- While industry executives and shoppers will remember 2008 as the year the party ended, figure 2009 to be the year of the hangover. Already, Circuit City, Linens 'N Things and Mervyn's stores are going away. Sharper Image is too, though the company will continue to sell some of its high-end gadgets through license agreements with other retailers.
- More pain is on the way. One-third of U.S. women recently surveyed by America's Research Group said they plan no clothing purchases--none--in 2009. Normally, it's just 4%. That means the market is still far too saturated with stores.
- Expect closings and bankruptcies to rattle the likes of Lane Bryant, Gap, and Starbucks. It's the inevitable counterpunch to the days of retailers fighting hand over fist for market share during an era of loose credit and minuscule interest rates.
- Those days are over, probably for a long time. While accelerating unemployment will only last so long, consumers' debt loads and credit access don't figure to recover to pre-party levels for quite awhile.
- "I don't think we will live the same way for 10 years," says Howard Davidowitz, chairman of New York-based retail consultant and investment bank Davidowitz & Associates. "People are so scared they're starting to save." (Howard is the best) Retailers at risk in 2009, he thinks, include outerwear specialist Eddie Bauer (EBHI) and teen-apparel-seller Pacific Sunwear (PSUN), along with Zales (ZLC), the big jewelry chain. All three shuttered at least 8% of their U.S. stores last year.
- The same is largely true of Charming Shoppes (CHRS), the owner of Lane Bryant, which closed 150 stores last year. With a mountain of debt and losses totaling over $260 million over the most recent 12-month reporting period, the company will close another 100 locations this year.
- Another possible casualty: Sears Holdings (SHLD), operator of Sears and Kmart stores. A key to hedge fund manager Eddie Lampert's 2005 merger of the two chains was in the underlying real estate. But with those values down 30% or so since then, slumping sales hit even worse. "I'd be surprised if Sears-Kmart makes it through the year," says Britt Beemer, who runs retail market-research firm America's Research Group.
- Non-apparel specialists like Starbucks (SBUX) and Sprint Nextel (S) won't be going away, but they will close hundreds more stores during the coming year, Davidowitz predicts. (more future infrastructure workers for Obama to put to work) What plagues Starbucks will also affect other upscale goody chains like Mrs. Fields' Cookies, and causal dining outlets like Applebee's and Cheesecake Factory. Any of the neighborhood outlets for those restaurant chains could be a casualty this year.
- Davidowitz doesn't think a huge government stimulus will help. Better to let things bottom out naturally before regrouping. "Obama's plan will make it worse," he says. "We got into this by borrowing and stimulating, now he wants to borrow and stimulate more." (did I mention Howard is the best? Yes I'm biased since he has agreed with me through 2007 and 2008) [Aug 14, 2008: Howard Davidowitz - the Only Realistic Retail Analyst in America?] [Mar 30, 2008: Howard Davidowitz on US Consumer]
[Jan 12: Wall Street Journal - Wake of Bankruptcy Filings Expected from Retailers in Wake of Holidays]
[Dec 18: CNNMoney: The Dead Mall Problem]
[Nov 10: McDonalds Strong, Circuit City Out]
[Jul 21: Add Mervyn's to our Growing Litany of Retailers Headed to the Great Sunset]
[Jul 10: Another Retailer (Canary in Coal Mine Down]
[Apr 11: This Day in Bankruptcies - Another Airline and our First Major Retailer]
3 comments:
SHLD has an impeccable balance sheet and little to no risk of BK. They were very profitable in Q4. The people thinking they are at risk for BK just havne't done their homework. They are being lazy and only focusing on their stores.
SHLD has somewhere around $5-7B in net inventory.
Stone, I actually agree with you. Kmart does suck however as a store :)
but the 'smart' thing Lampard does is he doesnt invest in it - hence he just lets the cash flow come and knows its a ratty place that some proportion of people will still go to.
I did think the stock buyback thing was a bit of a stunt but we'll see.
sorry that should be Lampert - I am thinking of soccer when I said Lampard.
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