This holiday season is make or break for some retailers, and while it’s not even Halloween yet, we’re already seeing some of them break.
"It’s a combination of the credit crisis and the consumer being in the worst condition in 100 years," says Howard Davidowitz, chairman of Davidowitz & Associates, a retail-consulting and investment-banking firm.
"It’s a debacle!" he exclaims.
West Coast department store Mervyns, which filed for bankruptcy protection in July, announced last week that, after 60 years, it would be shutting its doors for good after this holiday season. That followed on the heels of Linens n’ Things, which filed for bankruptcy in the spring, only to back away from its restructuring plans last week and begin liquidating its stores.
"The worst is yet to come" for the economy — and therefore consumers and retailers — Davidowitz says, but we probably won’t see any more stores going out of business before the holidays.
The reason we’ve seen any bankruptcies this early, Davidowitz says, is simple: Credit.
"Once your credit gets cut off, you can’t get any Christmas goods," Davidowitz says. That’s what happened to Mervyn’s and Linens ‘n Things.
Among other stores that have filed for bankruptcy protection recently are: Sharper Image, Shoe Pavilion and Steve & Barry's.
And struggling electronics retailer Circuit City is considering closing 20 percent of its stores and cutting thousands of jobs in order to avoid a bankruptcy filing, according to the Wall Street Journal.
"There are so many retail companies on the edge without a lot of credit" but most will hang on until after Christmas, Davidowitz says. But you can bet that "banks will keep them on a short string until after the holiday," he says.
Some retail categories are at more risk than others, including home retailers and department stores. "They can’t offer consumers value," Davidowitz says. And, for obvious reasons, "Luxury isn’t so wonderful," he says.
Retailers are going to have another couple of years of very bad results, according to Davidowitz's projections.
"The worst is yet to come," he says. "Massive closings. Massive number of bankruptcies."
Still, despite all the gloom and doom, there are a lot of winners in the retail circle, including Wal-Mart, BJs Wholesale, Costcoand dollar stores.
And the big winner is ... Bed, Bath & Beyond!
Not only is their chief rival going out of business, but "they're the gold standard of the sector," Davidowitz says.
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