Friday, March 21, 2008

Retail Stores Tanking?

From Retail Wire...

Retail Bankruptcies Could Be Worse Than 1991
By Tom Ryan

While still healthy overall, mall centers are being roiled by massive store closings among a variety of formats. Unless the economy dramatically improves, retail bankruptcies this year could reach the highest level since the 1991 recession, Dan Ansell who heads up real estate for the law firm Greenberg Traurig LLP, told the Associated Press.

Wilsons Leather, KB Toys, Ann Taylor, American Eagle, Talbots, Pacific Sunwear and Zale have already closed hundreds of stores this year. Sharper Image and Lilian Vernon have filed for bankruptcy, and analysts are waiting to see if store closing announcements are coming from Circuit City and Sears Holdings.

According to data from NAI Global, a commercial real estate services firm, average retail vacancy rates have climbed to between 7 percent and 8 percent from 5 percent over the last six months.

David Solomon, president and CEO of ReStore, NAI Global's retail division, told the AP that vacancy rates could hit 10 percent by the end of the year. Suzanne Mulvee, senior economist at Property & Portfolio Research, predicts vacancies could rise as high as 12.5 percent this year. Her figure includes retail spaces where tenants have defaulted on their rents.

Part of the problem, according to Ms. Mulvee, is that another 130 million square feet of retail space will become available this year, she predicts, on top of last year's 143 million. That is well above the average 100 million square feet added per year earlier in the decade.

Still, Mr. Solomon doesn't think the situation will be as dire as in 1991, when the savings and loan crisis hurt the entire country. At the time, it was the department stores that felt the major shakeup as leveraged buyouts and fierce competition led to the demise of names like Carter Hawley Hale Stores and Woodward & Lothrop. Major bankruptcies around that time included Allied Stores, Federated Department Stores, Macy's, Ames, Best Products, McCrory's, Hills Department Stores, Zale's and Hechingers. Experts also said merchants this time are weathering downturns better because of new systems to control inventory and costs.

Mall operators claim their top anchors -- the department stores and other big chains -- are in sound financial shape. Bill Taubman, chief operating officer of Taubman Centers, predicts more store closings and bankruptcies than last year, but doesn't think they will reach historic highs.