Retailer bankruptcies set to prompt thousands of store closings

Mike Sheehan
Raw Story
April 15, 2008

A growing number of bankruptcies among US retailers is set to prompt thousands of store closings, the New York Times will report on the front page of its Tuesday edition.

"The consumer spending slump and tightening credit markets are triggering a wave of bankruptcies in American retailing," with ensuing store closures "expected to remake suburban malls and downtown shopping districts across the country," writes Michael Barbaro for the Times.

Barbaro notes that over half a dozen store chains have filed for bankruptcy in recent months amidst "mounting debt and plummeting sales" and warns that financial troubles are "quickly spreading to bigger national companies."

The Times articles comes amid a slew of reports underscoring America’s economic woes. Even presumptive Republican presidential nominee Sen. John McCain, who only months ago panned talk of a recession, admitted today that he thought the country was now in one.

Even relatively well-off retailers face troubles. Added Barbaro in the article, such store chains who can avoid bankruptcy "are shutting down stores to preserve cash through what could be a long economic downturn."

Excerpts from the Times article, available in full at this link, follow…

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

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"You have the makings of a wave of significant bankruptcies," said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners. "For years, no deal was too ugly to finance," he said. "But now, nobody will throw money at these companies."

Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-strapped chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.

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In most cases, the collapses stemmed from a combination of factors: flawed business strategies, a souring economy and banks’ unwillingness to issue cheap loans.