Wednesday, January 14, 2009

Retailers Suffer Low Sales, Will Have to Refocus

TT Note: Retail sales were slow last year which reflected the downturn in the economy as consumers started to hold on to precious pennies. We've noticed local stores have scaled back in their inventory. In a number of stores, this is welcome as customers can now move around the store without continually bumping into racks full of items meant to become impulse buys. Some stores seem to be refocusing back to the basics of their original lines. Will all survive? Most likely not, but those stores who have the means to refocus quickly have the best shot of making it.

Dismal Retail Sales Revealed; Gross Margins to Tell the Whole Story, Says Grant Thornton

/PRNewswire/ -- Retail sales have been dismal, but the real damage to profitability and viability was unprecedented deep discounting, according to Grant Thornton Corporate Advisory and Restructuring Services. Department stores performed the worst, with the steepest decline in same-store sales, while luxury-apparel stores saw declining sales as consumers traded down and reduced discretionary spending.

"Same-store sales only tell part of the story," said Marti Kopacz, national managing principal at Grant Thornton Corporate Advisory and Restructuring Services. "The real eye-opener will be when gross margins are announced in a couple of weeks. During the holiday sales frenzy, retailers were selling items at 60 to 70 percent off to generate cash and move inventory. Items were sold below cost, which will hurt the bottom line."

This year will bring even greater distress for the retail industry, with many national retailers expected to close stores by double-digit percentages, according to Grant Thornton analysis.

"The current retail model will need to be evaluated from both a financial and operational perspective; retailers will need to remove underperforming stores and shrink to a more profitable core," said Jim Peko, principal at Grant Thornton Corporate Advisory and Restructuring Services. "Cost reduction, store rationalization and inventory management are the keys to operational restructuring. It is critical that merchandising plans be realigned to match expected consumer demand or retailers will not survive the downturn."

Retailers enter 2009 with many challenges. With a continuing lack of consumer confidence and frugality becoming more hip, retailers in the casual apparel and department store categories will experience high leverage and declining sales, according to Kopacz. Even general merchandise stores will take a hit on profitability.

"There will be an uptick in retailers filing for bankruptcy in the first quarter," said Kopacz. "Christmas can make or break this industry, and as we see same-store sales down and margins revealed, companies will be forced to review their operations and restructure their balance sheets. I believe we'll see some tried-and-true retailers re-enter the market this year with less stores and a more concentrated product focus."

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