Monday, December 22, 2008

Who’s Going Out of Business?

A blog post three weeks ago suggested a strategy for buying all Christmas gifts at going-out-of-business sales. But doing that might be more common that people realize. Many merchants are discounting so heavily in the week leading up to Christmas that people are starting to speculate that some of them might also be closing, or at risk of going bankrupt, after the holiday season is over.

Department stores that locked in their winter merchandise in August have little choice but to cut prices to try to move the merchandise out. But other stores are cutting prices just as heavily. Are they just trying to keep up, or are they secretly preparing to close?

Steep discounts have managed to increase foot traffic in U.S. stores above the levels of last week, but not to the levels of a year ago. And the foot traffic is not translating into strong sales. Shoppers seem relaxed this weekend, according to reports, indicating that they may be more curious about the sales than needing to buy more to finish their Christmas shopping.

Reports from the United Kingdom indicate a similarly chilly retail scene. In most other countries, though, the retail picture is not quite so gloomy.

If more than a few retail chains go under in January, it will increase the pressure on malls and shopping centers, some of which are already on thin ice. General Growth Properties, one of the largest mall owners in the United States, is trying to sell several of its premier properties, including Harborplace in Baltimore, as part of an effort to stave off bankruptcy. General Growth Properties has until February 12 to raise $900 million or find new financing for its operations.

Malls already embarrassed by the number of store vacancies will probably see a record level of vacancies by June, as more stores close and relatively few stores open. Some malls will probably have to close. But it’s hard to guess at this point what will happen. Some of the stores ringing up the most sales this month could be among those that close next month.