The New York Times reports that “the consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.”
In recent months, midsize chains such as Sharper Image and Levitz have filed for bankruptcy protection, and now bigger companies such as Linens ‘n Things are seen as being at risk – the bedding retailer is expected to file for bankruptcy as son as this week. And, even retailers not facing too few sales and too much debt are closing ranks. Announcing that they are closing stores to save money, and anticipating that this is going to be a long slog.
The Times characterizes the problems this way: “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.
“Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.”
In recent months, midsize chains such as Sharper Image and Levitz have filed for bankruptcy protection, and now bigger companies such as Linens ‘n Things are seen as being at risk – the bedding retailer is expected to file for bankruptcy as son as this week. And, even retailers not facing too few sales and too much debt are closing ranks. Announcing that they are closing stores to save money, and anticipating that this is going to be a long slog.
The Times characterizes the problems this way: “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.
“Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.”
- KC's View:
-
The sense I get from this story is that many of these retailers in trouble had faulty foundations to begin with, and simply were not structured to withstand the ill winds of declining consumer spending.
But here’s what I don't get.
Mrs. Content Guy was in a Kohl’s store the other day, and she said that the checkout people were all pushing customers to apply for Kohl’s credit cards by dangling discounts in front of them. It seemed to be a concerted effort – everybody was doing it, and a lot of customers were biting.
But isn’t this at least part of the problem with the US economy at the moment – too many people buying products with money they don't have? And if a company encourages that sort of behavior – conceivably putting itself at risk if these customers default – isn’t it the worst kind of irresponsibility?
