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7000 stores could close this year { April 30 2008 } Original Source Link: (May no longer be active)
http://www.npr.org/templates/story/story.php?storyId=90048679http://www.npr.org/templates/story/story.php?storyId=90048679
Drowning in Debt
Credit Problems Squeeze Retailers, Too
Morning Edition, April 30, 2008 · A record 7,000 U.S. stores could close this year, a retail analyst predicts, citing cuts in consumer spending and retailers' struggles to borrow money and fend off competition.
"We've got a very difficult situation in the retail business," says Howard Davidowitz, an independent analyst in New York. Several retail chains have filed for bankruptcy protection and another 15 or so are "on the edge," he says.
Retailers' debt jumped 30 percent in the past year, Davidowitz says.
"Just like consumer debt is up, corporate debt is up," he says. "Everybody's debt is up. It's a real danger."
Amid a tight credit market and banks suffering from the subprime mortgage mess, retailers are having trouble borrowing. Many retailers routinely use debt to finance their inventories, but that lifeline is harder to come by, Davidowitz says.
"This is a terrible time to be dependent on bank debt and be in trouble because the banks will be unmerciful...." he says. "There are many retailers out there ... who maybe could operate OK if they got some forbearance, but it's a terrible time to be dependent on bank debt."
Other factors are working against retailers. "Americans are spending less," Davidowitz says. "They've got the highest debt they've ever had." And consumers are spending more for food and energy, leaving less for discretionary purchases.
And, he says, "We have too many stores."
"We have 19 1/2 square feet [of retail space] for every man, woman and child in this country," Davidowitz says, suggesting that's nearly double what is needed.
Chains from Foot Locker to CompUSA have shuttered stores in the past year. In 2007, 4,500 stores folded, according to Davidowitz.
"Almost everybody closed because of too much competition," he says. "What happened? Wal-Mart came along and closed them down. The consumer made a choice to choose Wal-Mart. The prices were lower, the stores were bigger...."
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