Closings, Filings May Be in Store
When Santa Claus pointed his sled back to the North Pole on Tuesday night, he left a trail of road kill on the retail highway.
Barring a surprise post-Christmas buying surge, the 2002 shopping season is expected to be lackluster at best -- the third disappointing year in a row for retailers. And that, analysts say, could set the stage for a 2003 filled with store closings, restructurings and possibly bankruptcy filings among the parent firms of the 450,000 chain-store outlets competing for Americans’ dollars.
“Every mall is the same and every store within each mall seems the same,” said Marshal Cohen, retail analyst for NPD Group.
“Look at how many malls there are along the 405 Freeway,” he added. “Would it really make a difference to anyone if one or two of them weren’t there?”
Already, some stores are talking about retrenchment. On Monday, the owner of the 139-year-old FAO Schwarz toy chain said it planned to close as many as 70 locations.
“For one of the oldest and most famous toy retailers to be cratering at Christmas is amazing,” said Burt Flickinger III, who heads Strategic Resource Group, a New York retail and marketing consulting firm.
To be sure, there’s always some churn among the nation’s chain stores. What may be different in 2003 is that there could be more closures and fewer store openings.
Flickinger estimates that retail chains will announce 1,200 to 1,500 closings during the first half of 2003, about double the rate this year.
Many of the closures will come from Kmart Corp., which Flickinger expects to shutter nearly 600 of its 1,800 stores nationwide, including 40 in Southern California. The Troy, Mich.-based discounter, which is operating under Bankruptcy Court protection, said Tuesday that it will disclose details about its planned closures next month.
Other chains also are having holiday pains. Sales at Target Corp. and Barnes & Noble Inc. have fallen short of forecasts.
Even stalwart Wal-Mart Stores Inc., the world’s biggest retailer, said its sales will come in at the low end of its estimate of a 3% to 5% gain.
On Tuesday, Lehman Bros. analyst Alan Rifkin told Reuters that Best Buy Co. probably would shut as many as 150 mall-based music stores in its Sam Goody chain next month because of poor performance.
Flickinger and other retail consultants expect the store-closure epidemic to include such names as Gap Inc., Borders Group Inc., Good Guys Inc., Sports Authority Inc., Abercrombie & Fitch Co., Tower Records, May Department Stores Co., Saks Inc. and Blockbuster Inc.
“All of these chains overexpanded during the 1990s, and now they are going to have to close a number of stores and some will even take large write-downs to get out of leases,” Flickinger said.
Gap, which operates 4,100 stores under the Gap, Banana Republic and Old Navy names, said last month that it expected to close more stores next year than its usual 70 to 80.
Certainly, the sluggish economy is part of the problem. But another factor seems to be the worn-out consumer, who is spending with less ardor after a shopping binge in the late 1990s.
Some economists already are forecasting that holiday sales at stores open at least a year will rise 1.5%, the lowest since 1970 when the data were first tracked.
Indeed, many Americans may be thinking more about saving than shopping. The U.S. personal savings rate was at 4.3% in November, having climbed from a record low of below 2% in late 1999 and early 2000, according to the Commerce Department.
One reason why shopping is holding less appeal, according to Cohen, is that there are too many stores selling merchandise that is too similar.
He estimates that there are about 29 square feet of retail space for each person in the United States, about double from a decade ago.
Cohen and others believe that the saturation has crimped retailers’ ability to raise prices, and stores have to sell ever-greater numbers of goods just to stay even.
According to Michael Niemira, an economist with Bank of Tokyo-Mitsubishi, apparel prices have fallen 2% from a year ago; radio and television prices have dipped 10%; and housewares are down 2%.
This trend can be especially damaging to retailers, which need dollar volume to offset their large investment in real estate and store leases.
In a deflationary environment, retailers “need to sell more to make the same bottom line,” said Carol Sanger, spokeswoman for Cincinnati-based Federated Department Stores Inc., which owns Macy’s and Bloomingdale’s.
Today, department store prices are down about 3% from a year ago, according to Commerce Department figures. So to achieve a 3% increase in revenue, a store must boost its volume by 6%, noted Carl Steidtmann, chief economist of Deloitte Research in New York.
James Sinegal, chief executive of Issaquah, Wash.-based Costco Wholesale Corp., said that where the deflation exists in the retailing supply chain is what matters most.
As it has grown, Costco’s buying clout has improved, Sinegal explained, reducing its wholesale cost for many products. Passing those savings to consumers makes little difference as long as Costco maintains its profit margin.
Yet for many retailers, the deflation is taking place in their aisles, rather than at the supplier level.
For example, Southern California department stores found themselves in an increasingly heated discounting war this Christmas, flooding the market with bigger and bigger discount coupons and other markdowns as the holiday approached.
“When you put all these forces together, it is a disaster,” Cohen said.
Steidtmann, however, does not think it’s necessarily so bad in the end.
“I think you will see some bankruptcies and closures in retailing, and it will be healthy for the industry,” he said. “It is going to make life a lot easier for the survivors.”
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Times staff writer Leslie Earnest contributed to this report.
