Retail: Any Chance For Miracle On 34th St?

Twas the day before Christmas and all through the store, people still weren’t spending – much like before.

Okay the rhyme is hokey but you get the drift. Don’t expect any miracles in retail. The season is expected to be the worst in decades.

"It's beyond the worst fears of retailers," says C. Britt Beemer, chairman of America's Research Group.

After Christmas expect retailers to hasten a wave of store closures, restructuring and job cuts in the coming weeks, hoping to get a fresh start in early 2009 after more than a year of recession.

"We are going to see some shakeout in the retail industry and I think it's going to happen pretty quickly after the holidays," says Frank Badillo, senior economist with consultant TNS Retail Forward. "We'll see it in the form of store closings, mergers, acquisitions and bankruptcy."

Retail Stocks

JP Morgan analyst Brian Tunick also thinks 2009 is going to be challenging and he says stock prices don’t reflect that.

“Although 10,000 retail stores are expected to close most of them won’t be publicly traded retailers. So it looks like another year or two of apparel deflation which is a bad thing for retail stocks.”

In other words, it's going to get uglier before it gets better.

The retailers with the most earnings risk are Men's Wearhouse, Tiffany , Abercrombie & Fitch and J. Crew according to Tunick.

If you want to play retail from the long side you have to pick and choose. Tunick likes stores with a fashion trend tailwind such as The Buckle ; Hot Topic; and Ulta Salon.

In case you're wondering Tunick has been the #1 specialty retail analyst on the Street for 3 years running, as ranked by Institutional Investor magazine.

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