Full NYT article about impending closure of thousands of retailstores -- Bush Depression is here

Retailing Chains Caught in a Wave of Bankruptcies

By MICHAEL BARBARO

The consumer spending slump and tightening credit markets are

unleashing a widening wave of bankruptcies in American retailing,

prompting thousands of store closings that are expected to remake

suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains -- as diverse as the

furniture store Levitz and the electronics seller Sharper Image -- have

filed for bankruptcy protection as they staggered under mounting debt

and declining sales.

But the troubles are quickly spreading to bigger national companies,

like Linens 'n Things, the bedding and furniture retailer with 500

stores in 47 states. It may file for bankruptcy as early as this week,

according to people briefed on the matter.

Even retailers that can avoid bankruptcy are shutting down stores to

preserve cash through what could be a long economic downturn. Over the

next year, Foot Locker said it would close 140 stores, Ann Taylor will

start to shutter 117, and the jeweler Zales will close 100.

The surging cost of necessities has led to a national belt-tightening

among consumers. Figures released on Monday showed that spending on

food and gasoline is crowding out other purchases, leaving people with

less to spend on furniture, clothing and electronics. Consequently,

chains specializing in those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and

retailers rely heavily on borrowed money to finance their purchases of

merchandise and even to meet payrolls during slow periods. Yet the

nation's banks, struggling with the growing mortgage crisis, have

started to balk at extending new loans, effectively cutting up the

retail industry's collective credit cards.

"You have the makings of a wave of significant bankruptcies," said Al

Koch, who helped bring Kmart out of bankruptcy in 2003 as the

company's interim chief financial officer and works at a corporate

turnaround firm called AlixPartners.

"For years, no deal was too ugly to finance," he said. "But now,

nobody will throw money at these companies."

Because retailers rely on a broad network of suppliers, their

bankruptcies are rippling across the economy. The cash-short chains

are leaving behind tens of millions of dollars in unpaid bills to

shipping companies, furniture manufacturers, mall owners and

advertising agencies. Many are unlikely to be paid in full, spreading

the economic pain.

When it filed for bankruptcy, Sharper Image owed $6.6 million to

United Parcel Service. The furniture chain Levitz owed Sealy $1.4

million.

And it is not just large companies that are absorbing the losses. When

Domain, the furniture retailer, filed for bankruptcy, it owed On Time

Express, a 90-employee transportation and logistics company in Tempe,

Ariz., about $30,000.

"We'll be lucky to see pennies on the dollar, if we see anything,"

said Ross Musil, the chief financial officer of On Time Express. "It's

a big loss."

Most of the ailing companies have filed for reorganization, not

liquidation, under the bankruptcy laws, including the furniture chain

Wickes, the housewares seller Fortunoff, Harvey Electronics and the

catalog retailer Lillian Vernon. But, in a contrast with previous

recessions, many are unlikely to emerge from bankruptcy, lawyers and

industry experts said.

Changes in the federal bankruptcy code in 2005 significantly tightened

deadlines for ailing companies to restructure their businesses,

offering them less leeway.

And the changes may force companies to pay suppliers before paying

wages or honoring obligations to customers, like redeeming gift cards,

said Sally Henry, a partner in the bankruptcy law practice at Skadden,

Arps, Slate, Meagher & Flom and the author of several books on

bankruptcy.

As a result, she said, "it's no longer reorganization or even

liquidation for these companies. In many cases, it's evaporation."

Several of the retailers that filed for Chapter 11 bankruptcy

protection over the last eight months, like the furniture sellers

Bombay, Levitz and Domain, have begun to wind down -- closing stores,

laying off workers and liquidating merchandise.

In most cases, the collapses stemmed from a combination of factors:

flawed business strategies, a souring economy and banks' unwillingness

to issue cheap loans.

Bombay, a chain with 360 stores, was considered a success in the

furniture world, after its sales surged from $393 million in 1999 to

$596 million in 2003.

Then the chain decided to move most of its stores out of enclosed

malls into open-air shopping centers. It started a children's

furniture business, called BombayKids. And it started carrying bigger

items, like beds and upholstered couches, with higher prices than its

regular furniture.

Consumers balked at the changes, hurting Bombay's sales and profits at

the same time that its expenses for the ambitious new strategies began

to grow. The timing was unenviable: By early 2007, the housing market

began to falter, so purchases of furniture slowed to a trickle.

The company was running out of money, but banks refused to lend more.

"They did not want to take the chance that we might not repay the

loans," Elaine D. Crowley, the chief financial officer, said in an

interview.

In September 2007, Bombay filed for bankruptcy protection. The highest

bid for the company came from liquidation firms, who quickly

dismembered the 33-year-old chain. Bombay, which once employed 3,608,

now has 20 employees left. "It is very difficult and sad," Ms. Crowley

said.

The bankruptcies are putting a spotlight on a little-discussed facet

of retailing: heavy debt.

Stores may appear to mint money by paying $2 for a T-shirt and

charging $10 for it. But because shopping is based on weather patterns

and fashion trends, retailers must pay for merchandise that may sit,

unsold, on shelves for long periods.

So chains regularly borrow large sums to cover routine expenses, like

wages and electricity bills. When sales are strong, as they typically

are during the holiday season, the debts are repaid.

Fortunoff, a jewelry and home furnishing chain in the Northeast,

relied on $90 million in loans to help operate its 23 stores, using

merchandise as collateral.

But by early 2008, as the housing market struggled, the chain's

profits dropped, meaning its collateral was losing value and the

amount it could borrow fell.

In better economic times, the banks might have granted Fortunoff a

reprieve. But with a recession looming, they refused, forcing it to

file for bankruptcy in February. In filings, the chain said it was

"facing a liquidity crisis." (Fortunoff was later sold to the owner of

Lord & Taylor.)

Plenty of retailers remain on strong footing. Arnold H. Aronson, the

former chief executive of Saks Fifth Avenue and a managing director at

Kurt Salmon Associates, a retail consulting firm, said the credit

tightness and consumer spending slowdown have only wiped out the

"bottom tier" companies in retailing.

"This recession dealt the final blow to these chains," he said. But

several big-name chains are looking vulnerable. Linens 'n Things,

which is owned by Apollo Management, a private equity firm, is

considering a bankruptcy filing after years of poor performance and

mounting debts, though it has additional options, people involved in

the discussions said Monday.

Whether more chains file for bankruptcy or not, it will be hard to

miss the impact of the industry's troubles in the nation's malls.

J. C. Penney, Lowe's and Office Depot are scaling back or delaying

expansion. Office Depot had planned to open 150 stores this year; now

it will open 75.

The International Council of Shopping Centers, a trade group,

estimates there will be 5,770 store closings in 2008, up 25 percent

from 2007, when there were 4,603.

Charming Shoppes, which owns the women's clothing retailers Lane

Bryant and Fashion Bug, is closing at least 150 stores. Wilsons the

Leather Experts will close 158. And Pacific Sunwear is shutting a 153-

store chain called Demo.

Those decisions were made months ago, when it was unclear how long the

downturn in consumer spending might last. If March was any indication,

it is nowhere near over. Sales at stores open at least a year fell 0.5

percent, the worst performance in 13 years, according to the shopping

council.

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http://www.nytimes.com/2008/04/15/business/15retail.html?_r=1&partner=MYWAY&pagewanted=print&oref=slogin

On Apr 15, 7:28 am, "Kickin' Ass and Takin' Names"

<PopUlist...@hotmail.com> wrote:

> Retailing Chains Caught in a Wave of Bankruptcies

> By MICHAEL BARBARO

> The consumer spending slump and tightening credit markets are

> unleashing a widening wave of bankruptcies in American retailing,

> prompting thousands of store closings that are expected to remake

> suburban malls and downtown shopping districts across the country.

Now that is an interesting article.

On Saturdays, maybe twice a month, I go to Marshall's and to T.J. Max

to check out the sales and clearances. You can sometimes

get some nice clothing buys.

A couple of months ago, I noticed that the stores did not seem to be

restocking their shelves and a LOT of empty shelves were starting to

show up. I have seen this ever since, their inventory keeps going

down by not much new stuff. I just wonder if these are among the

stores slated for closure. It is NOT a good sign when stores like

these start closing.

At first I thought it must be seasonal. But now I'm not so sure.

Citizen Jimserac