Retail Bankruptcies Threaten To Wreck Economy, Empty Your Local Mall
As the cost of food and gas begin to crowd out other expenses, and access to credit is limited by the mortgage meltdown, a "widening wave of bankruptcies in American retailing" is threatening the economy, says the NYT.
Since last fall, eight mostly midsize chains -- as diverse as the furniture store Levitz and the electronics seller Sharper Image -- have filed for bankruptcy protection as they staggered under mounting debt and declining sales.Beyond losing your favorite store, the bankruptcy tsunami has broader implications as troubled retailers leave unpaid bills in their wake:But the troubles are quickly spreading to bigger national companies, like Linens 'n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.
Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117, and the jeweler Zales will close 100.
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.
Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-short 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.All this means that gift cards are an increasingly risky investment. Changes to the bankruptcy laws in 2005 may force retailers to pay suppliers before honoring gift cards or even paying employee salaries. Give cash!
Retailing Chains Caught in a Wave of Bankruptcies [NYT] (Thanks, Stephanie!)
(Photo:hive)
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This is not really surprising. The steady trend towards consolidation is what is killing the traditional enclosed mall and causing problems in commercial real estate. This is especially true for the big box stores. When the Wallmarts, Targets, and Shopkos of the world close a store there is nobody else that wants that space. More often than not those spaces are converted to business space or demolished (in the case of freestanding structures). At the same time there are what, maybe 200 different companies with multiple retail location that would go in an enclosed mall in the first place?
When the economy takes a dive few of these will be opening new locations and many will be closing existing ones. Expect to see a large number of empty storefronts in the near future.
In other words, mall based stores which sell luxury goods are taking a hit in an economic down turn. Meh, it's to be expected.
Going to get worse before it gets better methinks
If the Malls go out of business, where will teenagers shoplift and seniors do their morning walks?
I hate Zales. Browsed there a few times (actually, at three different stores) and found their salespeople to be very pushy. Decided to go elsewhere.
My mall has been practically empty for the last 20 years. It does have both a Foot Locker and Zales and this post is making me think that it soon won't.
Aren't we all glad that we give huge tax breaks to oil companies, and big box retailers (the two sectors that will weather this storm quite nicely).
This reminds me of why I love DeadMalls.com. Hopefully there will be a slew of new empty mall photos!
Malls are so 1980s.
www.deadmalls.com While not updated recently it is interesting. Actually here in the Nashville area one mall- Harding Place was plowed under for a Super Wal-Mart, one (100 Oaks) is going to be a hospital-health center, and another is getting torn down for an outdoor strip mall type deal- Bellevue Center.
Give cash!
Or, here's a novel idea: think about your friends & family for more than five minutes, and make them a nice gift by hand.
This has happened before and I'm sure it will happen again in the future.
Adapt or die.
I only go to the mall for the occasional burrito for lunch. Anything of substance is bought online.
The retail landscape of America is going to change drastically over the next 20 years, and the changes are fermenting as we speak. Between the economic downturn, the rise of retail consolidators (eg. Wal-Mart) and the increased prevalence of online shopping, I'm at a loss for what retail in America will come to mean. The States are known around the world for our strip malls and outlet stores; I'm curious what image we will project to foreigners in the future. Will the unused space be rezoned and allocated to schools, parks, homes, or something yet unimagined? Either one sounds pretty good to me; the decline of retail isn't necessarily a bad thing. I'd love to see TED ([www.ted.com]) take up this subject.
Wait a minute, Sharper Image is going out of business and that's considered a bad thing?
Malls near me aren't closing any time soon. But it floors me that there are 4 different stores that sell athletic shoes. Maybe it's a good thing that people don't purchase a new $150 pair of shoes every 3 months.
I went into Lady Foot Locker to buy trail running shoes. The salesgirl had no idea what that meant.
@ivanthemute: You (and a lot of the commenters) are missing the point. It's not so much the chains themselves - businesses fail all the time, after all. The story here is that effect of the bankrupticies and closures across the value chain.
Now, the *really* luxury stores, as opposed to merely luxury-ish chains like Ann Taylor and Sharper Image, are going to be fine, I think, since the super rich folks won't be as hard hit by the downturn as much. There will always be a market for obscenely rich people who want to spend lavishly. It's the businesses that cater to the merely well off that will suffer the most.
@akalish: Very good point. I still visit malls near me from time to time but mainly because I want to visit one specific shop, not to just wander around and browse. I've also gotten to the point where I do anywhere from 90%-100% of my Christmas shopping on-line so that I can avoid the mob scenes that still occur at the malls.
How funny that a few months ago, there was an article about how this one developer was going to turn around this dying mall up in Laurel, MD. Something tells me that's not going to happen now, it will probably just continue to die a slow death.
Restoration Hardware, Restoration Hardware, Restoration Hardware, Restoration Hardware, Restoration Hardware...
I suggested we our rather empty local mall to run some type of event to lure in the local punk kids, then lock them in and burn it down. I think the plan ran into zoning problems or something.
oops, that should be "...we should use our rather empty..."
Yeah, to be fair, the Sharper Image should never have made it out of the 90s in the first place.
More seriously, there's a lot more to worry about globally(food riots, etc) than a couple malls shutting down.
Malls suck, anyways
@thewriteguy: One of my favorite sites... too bad the possibility of new pix might be the result of so much economic chaos...
I don't see my closest mega mall, the King of Prussia Court and Plaza, becoming a set for Dawn of the Dead yet. But you can see the subtle shifting of retail spaces. There are a few vacancies, but nothing traumatic. But the overall lack of shoppers is almost shocking. Even the wandering hordes of Tenniboppers and Goths have dwindled as their parents have opted not to waste gas by dropping them off to wander aimlessly; yet always circling back to the food court.
@spinachdip: Excellent point.
My favorite malls are El Con Mall in Tucson and the Greenbriar (sp?) Mall and Shannon (not quite sure of the name) Mall in/around East Point, GA.
El Con mall has basically been gutted for Target and Home Depot, while the rest of it remains almost completely empty. It was really trippy to walk around in there recently with everything closed, because they tried a few times to totally remake the mall into the cool place to be but failed miserably every time.
Shannon and Greenbriar are just really really bad malls, although Greenbriar had the first Chic-Fil-A apparently.
@Mr. Gunn: I agree, malls suck. I rarely go there, unless I need to buy some clothing, or go to the Apple Store. Amazon and EBay takes care of everything else.
I blame those hideous babydoll tops.
Buy placing the same stores, selling the same goods, in every mall, these chains have been competing with themselves for too long. It's no wonder that they are closing stores.
Randhurst Mall in Mount Prospect, IL has been on life support for the past couple of years anyway. The stores there are mainly privately owned, so they won't feel much of the chain store burn. Probably too busy feeling the burn of not having much business.
Last I heard, it was going to be bulldozed and townhouses put in. It's a shame, because it's one of the first malls in the area, and is interesting architecturally. But who would buy a cheaply made condo for $2-400,000 in this market anyway?
One thing that no one has mentioned is the loss of jobs this means. It's not just college students working at mall jobs (and granted I havent' worked in a mall in a decade) but the managerial positions. Not to mention the jobs the malls generate themselves (mall management, janitorial, security). One or two stores closing in a mall may not be a big deal, maybe the mall can get new stores, but when more and more companies start cutting the number of locations then it gets harder for the mall to rent spaces, the more empty stores in malls the fewer jobs there are.
Not to mention that I've known lots of people who worked part time in malls to supplement their main income -- not for extras and fancy stuff but to pay of school loans, put food on the table, be able to have money to save, etc.
Anyone ever been to the Berkshire Mall in western Massachusetts? The archetype of the "depressing mall." The Goth kids at the Hot Topic are the sunniest in the entire building.
Amazon demolished the independent and used book stores - it's not a surprise that online retailers are having similar deleterious effects on B&M stores. This isn't a bad thing per se - online stores are much more efficient, and promote more intelligent purchases and lower prices.
@alilz: Don't forget the loss of jobs in the support industries, like shipping and manufacturing and wholesalers. And combine *that* with the looming inflation and continued liquidity crunch, it's hard not to have a shitty outlook on the foreseeable future.
@Norcross: Does anyone remember Chris Rock's bit about the mall white people go to and the mall white people USED to go to?
I'm thinking giant buildings with only athletic shoes, baby clothes and those awful Waldenbooks.
I am getting married very soon. I feel sort of bad for the people who bought or will be buying us gift certificats at failed or failing stores. They might not get the secondary happiness of me enjoying new stuff.
I never understood how retailers ever made a profit after paying their mall rent. And then you have anchor stores like Best Buy and Sears doing everything they can to prevent people from purchasing there. Bye bye Sears. Wish I could say it was nice shopping there.
@durkzilla: But this hasn't happened before, at least not to this extent, because we've never had a credit crisis of this magnitude or breadth.
we're not talking about businesses that are particularly poor performers here.
Without the credit crisis, these businesses could weather a tough retail climate, but as the NYT article points out, the loans that are essential for day-to-day operations have dried up. Telling businesses to "adapt or die" is tatamount to telling a high school dropout to "publish or perish".
Newer successful malls run to categories, the mega outlet malls with the roller coasters and such... or a smallish mall with very little for the under 18 set. Most malls built in the 70-80's were designed to bring in kids, hoping parents would come along (or give em money). Now since kids have guns...or shoplift, newer malls are being designed to keep kids out. A lot of upscale clothing stores, not so much with the toy stores and hot topics. Smaller, up scale malls are doing well... it's all those old mid sized malls that will die off when so many of the smaller retailers start to go away.
malls have been dying for years & years. WAY before the current downturn in the economy.
Even Montgomery Mall in Bethesda MD, which is very sucessfull, is hurting it seems. I've noticed more empty or dying stores now than in years past. Discestinoary spending on designer clothing only goes so far.
"The Goth kids at the Hot Topic are the sunniest in the entire building. "
That's brilliant! :D
Wouldn't it be ironic if we see a resurgence of the local retailers that the malls have chased out? It will all come full circle then.
The malls and strip malls in my town killed several really good used record/cd stores, three family owned book stores, a couple of toy stores, two family owned music stores, at least a half dozen furniture stores, and several small clothing and computer shops.
Who knows if these types of retailers will ever make a comeback. It's going to be hard weaning people away from the easy lure of Amazon.
I think within the next 10 years, most major purchases will be done online. If I had money to invest, I would look into stock in online stores (like Amazon), shipping companies (like UPS, FedEx and Airborne Express) and look for private PO box chains that are listed on the stock exchange.
On the last point above, I predict that more PO box stores will open across the country, be larger in store size, be open after traditional 9-to-5 work hours, and feature several over-sized lock boxes... You buy a large item online, pick it up a week later at your nearby PO box store, where it's been stored in one of the large lock boxes.
We'll buy most of our non-necessity, luxury items online (and perhaps most clothes, as well).
meh.
The economy is going in the tank. All that credit is finally coming due. Probably a good thing in the long run, but a couple of painful years.
My bold and somewhat idiotic prediction:
1. Malls will close
2. Giants like Wal-Mart will buy them and convert them into a store with living quarters for their employees. 3.Employees will live at work, will use company doctors and will make minimum wage.
4. Wal-Mart will be able to say "we provide a living wage" because they provide living quarters but they will be paying for property instead of wages...
/ridiculous, I know
Empty malls are depressing. The Tri-state mall, just south of the border in DE was where my father bought me Omega Supreme when I was a child. I just stopped there to get some socks on the way to a business trip and was shocked.
Value City is the only store left. The mall is filthy and empty. Not that I would do anything to save it as I do a lot of shopping online. Still...it's sad.