Retail growth seen screeching to a halt
Written on October 2, 2008
Retailers may have to scrap their growth plans and shrink in 2009 to survive as they face the grimmest economic environment since the early 1990s.
Many U.S. retail chains, including Gap Inc (GPS.N: Quote, Profile, Research, Stock Buzz) and Circuit City (CC.N: Quote, Profile, Research, Stock Buzz), have already scaled back expansion plans as a troubled U.S. housing market and higher food and gas prices put a chill on spending.
Now a world financial crisis stemming from last year’s U.S. mortgage meltdown, coupled with extremely tight credit markets and gloomy sales forecasts, will force retailers to halt expansion and close up to 10 percent of bottom locations following the holiday season, said Marshal Cohen, chief industry analyst for the retail research firm NPD Group Inc.
“It is now going to be every store for themselves,” said Cohen. “If you are not generating your own profitability, forget it payday loan. Either you make it or you don’t.”
While in the past retailers might have kept poorly performing stores open if an overall region were profitable, that may no longer be an option.
And with retailers keeping inventory tight to reduce clearance levels, a lack of product availability and freshness could hamper holiday sales even more than predicted, said Cohen, leading retailers like Gap and Abercrombie & Fitch Co (ANF.N: Quote, Profile, Research, Stock Buzz) vulnerable to closing stores to protect profit margins.
“The focus now will be margin, margin, margin. You can have better margin on less stores,” said Cohen, who predicts retailers will wait until the beginning of the 2009 fiscal year to announce holds on growth plans.
SLUGGISH
Filed in: technology.