Editor's Letter: Looking for a Retail Hero
Dec 1, 2008 12:00 PM, By David Bodamer, Editor-in-Chief
It seems like not a day goes by without one retailer or another announcing that it is closing stores, declaring bankruptcy or opting to liquidate. In many cases it's the same firms making those same announcements on their grim march to oblivion. Even scarier is the fact that as the recession deepens and credit remains scarce, retailers are moving quickly through the stages.
Management at Mervyns, Steve & Barry's and Linens 'n Things, for example, all first sent signals that while the companies faced painful restructurings, they ultimately hoped to steer the chains back to profitability. All ultimately filed for bankruptcy. Each lined up debtor financing or found a private equity partner to provide funding to help get through a downturn. Then, suddenly, weeks or months after announcing a revival strategy all three ended up throwing in the towel. Will Circuit City, Sears and countless other retailers on the ropes ultimately end up liquidating too?
Projections are that 2009 is not going to be very kind to the retail real estate industry. Anyone who was hoping for a quick recovery is going to be disappointed. The credit crisis isn't fully resolved yet — although the worst might be past us. The bigger problem is the bear of a recession the U.S. is looking at. All indications are that this won't be like 2002 or 1992. It's going to be more like the early 1980s — or worse. I've even heard the phrase “Great Recession” tossed around. In other words, this isn't going to be 1930s bad, but it will be worse than what most of us have ever experienced.
So if you take that — what could be a two-year recession according to some estimates — and you throw in a contraction of credit along with job losses and wage stagnation, it's going to be very hard for U.S. consumers to bounce back very quickly.
For retailers and owners, that means it's time to hunker down for now and hope that things get better in 2010. If you can get through 2009 intact and in a position to capitalize once economic fortunes turn for the better, you should consider the year a whopping success. For more on what will likely go down as retail real estate's “lost year,” check our extensive forecast starting on page 20.
In the meantime, what we need today are retail heroes — chains that any landlord can rely on to weather this crisis. In the past, there was speculation that the luxury sector would make it through any future downturns well because of the explosion of wealth at the top of society. That prediction, however, is flaming out in a big way. Many luxury chains are seeing dramatic drops in sales. It turns out such chains may have relied on aspirational spending by middle-class shoppers more than they thought.
One of those heros looks to be Wal-Mart. However, even Wal-Mart is planning on dialing back its expansions in 2009. It's announced plans to scale back openings at least three different times. Alternate stars right now look to be other value-oriented retailers — TJX, dollar stores and warehouse clubs, for example. And there's that old saw that grocery stores and other necessity-type retailers are recession proof. In the end, those seem to be the best bets for landlords now. And let's all hope for the best in 2010.
