Davidowitz: "We're in a Death Spiral"

The end of the line for many of the American retailers is January of 2010. Many of them are hanging on by a thread or in a free fall hoping that a strong Christmas season can boost sales.

This simply will not happen. Discount retailers will continue to flourish, however, will prove vulnerable in an environment where prices accelerate quickly. Stores like Wal-Mart are heavily dependent on cheap gas to get their merchandise into their distribution centers and then on to the stores. Fringe markets will become less viable and there will be potential for locally owned stores to exist once again.

Let's take a look at a successful, regional shopping center in Chicago - Fox Valley Mall owned by international REIT Westfield out of Australia.

Off the bat the anchors Macy's, Sears and JC Penney are all vulnerable.

You lose ONE of the anchors and you may lose your premier apparel tenants which draw consumers regionally including Abercrombie, Forever 21, Victoria's Secret, Banana Republic, Gap, etc. and keep other stores there.

Even without an anchor loss, you are looking at troubled tenancies including...

Bakers, Build a Bear, Claire's, Deb, dELIA'S, Disney, Eddie Bauer, Express, FYE, Helzberg, Hot Topic, JB Robinson, Journeys, Justice, New York & Company, Pacific Sunwear, Radio Shack, Spencer's, Sunglass Hut, Waldenbooks and Zales.

This is of course an example of one of the most stable markets (Chicagoland) and submarkets (Naperville/Aurora) in the country. What does it look like in Detroit? Baghdad after another Bill Clinton scandal...

"In the Tank Forever": U.S., Retailers in a "Death Spiral," Davidowitz Says
Posted Aug 27, 2009 07:30am EDT by Peter Gorenstein
Related: dltr, fdo, spy, kss, xrt, WMT, CVS

Retail maven Howard Davidowitz paid another visit to Tech Ticker this week. And despite signs of improvement in consumer confidence and retail stocks rising, Davidowitz is steadfast in his belief the consumer is dead.

Rather than summarize, let me just highlight some of his best one-liners:
On retail:

* "The retail business is terrible... It's almost all negative."
* "We're going to close hundreds of thousands of stores."

On the consumer:

* "They’re still over leveraged, they're losing jobs, their credit has been cut back."

On America:

* "We are in the tank forever. As a country we are out of control, we're in a death spiral."

On the stock market:

* "We're in terrible shape. That's what the fundamentals tell me. I can't explain the stock market."

But it's not all gloom and doom, believe it or not. Davidowitz, who runs a retail consulting firm Davidowitz and Associates, thinks certain discount retailers, grocers, drug store chains and a select few department stores can survive and prosper in the future.

Most notably he likes the "extreme discounters" like Family Dollar, Dollar Tree (which was up almost 5% Tuesday after the company raised its outlook) and 99 Cents Only Stores. And, in the department store sector, he says, Kohl's will "be the only winner" because of their cost controls. (Davidowitz has no positions in stocks mentioned.)

Grant Thornton: 10,000 Retail Stores Could Close by Year’s End
Triangle Business Journal - by Kelly Johnson Sacramento Business Journal

As many as 10,000 stores are expected to close by the end of this year, according to a retail report by Grant Thornton LLP.

Retail distress advisers at the company’s Corporate Advisory and Restructuring Services division in New York focused in the report on what retailers can do to improve their chances of survival, specifically through financial management and process improvement.

Retailers faced their biggest declines at the end of last year, Marti Kopacz, Grant Thornton’s CARS national managing principal, said in a Tuesday release. More than halfway through 2009, consumers still aren’t in the mood to open up their wallets.

“Falling sales hit all regions of the country and nearly all retail sectors, challenging stores and pushing many to the brink of failure,” Kopacz said. “Either retailers are contemplating bankruptcy, have already declared it or are announcing significant reductions.”

Scott Davis, a CARS principal, said companies need to capitalize on retail trends and focus on financial management.

“Although there’s high risk in the retail industry, now is the time for companies to fine-tune their business and take advantage of new opportunities,” Davis said. “The winners will be the disciplined companies investing the time, effort and resources to re-examine their strategies and position themselves for growth.”

The CARS group’s tips include:

• Balance and integrate the use of bricks-and-mortar stores with online sales.

• Consider private-label products, which are gaining ground over name brands.

• Invest in environmentally friendly, or “green,” practices, and determine which green products to offer.

• Improve customer loyalty through incentives, such as discounts, guarantees and generous return policies.

• Focus on lean operations and reducing waste.