Holiday Sales Slump to Force U.S. Store Closings, Bankruptcies

 U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.

Retailers will close 12,000 stores in 2009, according to Howard Davidowitz, chairman of retail consulting and investment- banking firm Davidowitz & Associates Inc. in New York. AnnTaylor Stores Corp., Talbots Inc. and Sears Holding Corp. are among chains shuttering underperforming locations.

More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. The holiday results indicate possible consolidation and further bankruptcy filings, according to Gilbert Harrison, chief executive officer of retail advisory firm Financo Inc.

“You’re going to see deals that you never thought you were going to see before because of the necessity of both parties,” Harrison said in a Bloomberg Television interview Dec. 26.

Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the International Council of Shopping Centers said last week, more than the previously projected 1 percent decline. That would be largest drop since at least 1969, when the New York-based trade group started tracking data. Many retailers will report December results on Jan. 8.

Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, according to data from SpendingPulse.

Shutting Locations

Probably 50,000 stores could close without any effect on consumer choice, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said this month during a panel discussion held at Bloomberg LP’s New York offices. Only retailers with healthy balance sheets will survive the recession, according to Matthew Katz, a managing director at consulting firm AlixPartners LLP.

As of Dec. 10, announced store closings based on the ICSC’s tracking survey reached 6,387. For the year, the number of locations shut down will likely hit about 6,600, a number only surpassed by the 2001 tally of 7,031, according to ICSC chief economist Michael Niemira. The rate of stores being shut may continue at about the 2008 pace in early 2009, with the half- year total around 3,000 to 3,400 closures, Niemira wrote yesterday in an e-mail.

The U.S. economy shrank in the third quarter at a 0.5 percent annual pace, the worst since 2001, according to the Commerce Department. Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009.

‘Slow Road’

“Retail overall is going to have a tough, tough time,” said Patti Freeman Evans, an analyst at Jupiter Research in New York. “It’s going to be a slow road because there is not a quick fix to this situation.”

The Standard & Poor’s 500 Retailing Index has shed 34 percent this year, with only two of its 27 companies gaining.

The index doesn’t include Wal-Mart Stores Inc., the world’s largest retailer, which fell 9 cents to $55.35 on Dec. 26 in New York Stock Exchange composite trading. Wal-Mart shares gained 16 percent this year before today. The retailer may continue to gain share in 2009, according to Laura Champine, an analyst with Cowen & Co. in New York.

Discounts of 70 percent off or more by Macy’s Inc., AnnTaylor Stores Inc. and other retailers failed to prevent a spending drop of as much as 4 percent during the final two months of the year, according to data from SpendingPulse. Consumers are trained for sales, according to Evans.

A Better Future

“The situation is not going to right itself in January, it’s going to be a long while that discounting’s going to be around,” said Evans. “Consumers are going to get used to it and it’s going to very difficult for retailers to move forward in a full-price mode.”

Retail bankruptcies may give the industry “a much better future,” according to Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York.

“As a result of the bankruptcies, America, which had twice as much retail space as demand called for at the end of the ‘90s and added 50 percent more this year, will be back to what shoppers need,” Flickinger said in a Bloomberg Television interview Dec. 26.

 Heather Burke Bloomberg