Banks not bailing out retailers
Banks not bailing out retailers
This means there may be more bankruptcy filings, like the one expected this week from Linens & Things. As of April 11, reports that the company would seek bankruptcy protection were unconfirmed. The company saw a net loss of $62 million in Q4 of 2007. It reported a 0.6% increase in sales during the same quarter.
“In an economic environment like this, the weaker performers can't sustain the increased cost structure and the lower sales, and their lenders aren't going to tough it out with them,” Gruppo said. “The rest of the year isn't going to be pretty.”
In fact, March same-store sales fell by 0.5% year-over-year at US chain stores, according to the International Council of Shopping Centers' index. However the council predicted that April sales will increase from 2%-2.5% despite waning consumer confidence in the economy.
Michael Sherman, senior advisor at investment bank Peter Solomon, also thinks the worst may already be over.
The majority of multichannel merchants make their profit during the holiday season, so when holiday sales are soft — as this 2007's were — it can be tough for some retailers to hang on until the next holiday season rolls around.
“The banks have seen all the results from last year by now,” said Sherman.
When combined with the fact that last year catalogers faced a significant postage increase, rising paper costs, it becomes easy to see why so many retailers can't simply ride out this situation.
“This is a challenging environment and if you're a struggling retailer, the banks are certainly not making it easier for you,” Sherman said.
While in some environments, the banks will continue to lend businesses money when they need it, right now “banks are more risk-averse than they've been in a while,” he added.
That means that the retailers that will survive rising costs, consumers who aren't buying and risk-averse banks are those that are properly capitalized and have a strong balance sheet, Sherman said.
