Retail shakeout: 'Worst is yet to come'
Experts warn that the credit freeze combined with slumping sales - and a likely dismal Christmas season - will force out many more retailers in 2009.
By Parija B. Kavilanz,
CNNMoney.com senior writer
October 13, 2008: 1:51 PM ET
NEW YORK (CNNMoney.com) -- The credit market freeze has added to an incredibly tough sales year for U.S. retailers, and analysts warn that these challenges are just the beginning of what could be a brutal 2009 for merchants.
"The worst is yet to come," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm.
"We'll see some tried and true [retail] names disappear," said Marti Kopacz, managing principal with corporate advisory and restructuring firm Grant Thornton.
Prior to the credit crunch, retailers were already struggling with softening sales as higher gas prices and falling home equity forced Americans to curtail purchases.
Last month's sales at stores open at least a year, which is a key measure of a retailer's performance known as same-store sales, rose just 0.8%, according to sales tracker Thomson Financial. Forecasts were for a 1.5% increase, according to Thomson.
Analysts say same-store sales of 3% or higher typically reflect a healthy U.S. consumer. Since consumer spending fuels two-thirds of the nation's economy, such a low same-store sales number is a bad sign.
What's more, since the beginning of this year, more than two dozen store chains have succumbed to a spending slump and either filed for Chapter 11 bankruptcy protection or gone out of business for good.
Now, retailers must cope with the credit markets being locked up too. This, Kopacz said, will further hinder consumers' ability to shop in the weeks and months ahead, and impede retailers' ability to run their business.
Kopacz predicts that, as a result, the industry could eventually lose between 10% and 15% of stores next year.
Credit is the lifeblood of retailers
Claire Gruppo, co-founder and managing director of independent investment firm Gruppo, Levey and Co., thinks retailers are heading for a dismal fourth quarter, especially if Christmas sales shrink.
The November-to-December holiday gift-buying months can account for as much as 50% of merchants' annual profits and sales.'
"The worst is yet to come," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm.
"We'll see some tried and true [retail] names disappear," said Marti Kopacz, managing principal with corporate advisory and restructuring firm Grant Thornton.
Prior to the credit crunch, retailers were already struggling with softening sales as higher gas prices and falling home equity forced Americans to curtail purchases.
Last month's sales at stores open at least a year, which is a key measure of a retailer's performance known as same-store sales, rose just 0.8%, according to sales tracker Thomson Financial. Forecasts were for a 1.5% increase, according to Thomson.
Analysts say same-store sales of 3% or higher typically reflect a healthy U.S. consumer. Since consumer spending fuels two-thirds of the nation's economy, such a low same-store sales number is a bad sign.
What's more, since the beginning of this year, more than two dozen store chains have succumbed to a spending slump and either filed for Chapter 11 bankruptcy protection or gone out of business for good.
Now, retailers must cope with the credit markets being locked up too. This, Kopacz said, will further hinder consumers' ability to shop in the weeks and months ahead, and impede retailers' ability to run their business.
Kopacz predicts that, as a result, the industry could eventually lose between 10% and 15% of stores next year.
Credit is the lifeblood of retailers
Claire Gruppo, co-founder and managing director of independent investment firm Gruppo, Levey and Co., thinks retailers are heading for a dismal fourth quarter, especially if Christmas sales shrink.
The November-to-December holiday gift-buying months can account for as much as 50% of merchants' annual profits and sales.'
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