Don't tell Borders or Liz Claiborne that the retail business is getting healthy. Despite years of industry cache, both lose money, tout share prices in the single digits and just couldn't close down stores fast enough in 2010.
The downside: the sales increase came off a low base, thanks to the disaster of 2009, and the 0.6% rise in December sales over last year was less than expected. Customers are paying with cash, not credit cards, an indication that they're still watching money closely. And given all the stores that are still closing doors, it's clear that some of the excess capacity from the go-go years is still around. Ask an industry expert about the current state of retail, and the feeling is better, but not great. "You can't tell me it's good," says Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consultant and investment bank. "Given that Wal-Mart (NYSE: WMT - News) is down for six straight quarters, that Target (NYSE: TGT - News) missed [profit expectations] by a mile, and that Best Buy (NYSE: BBY - News) had a major earnings miss, how well can retail be doing?"
Borders Group (NYSE: BGP - News), delaying payments to publishers and distributors as it struggles to refinance its debt, shut down approximately 200 of its Borders and Waldenbooks stores in 2010. With book readership declining in general and Amazon snagging a lot of the remaining business, things aren't easy for traditional booksellers. Rival Barnes & Noble (NYSE: BKS - News) recently completed the shutdown of its low-volume B. Dalton unit, once a staple of shopping malls across
America. The last 50 B. Dalton stores were closed this past year. Apparel sales are doing better these days, but that doesn't mean there's room for everyone. Not when so many players are out there competing for dollars that consumers are still parting with cautiously. TJ Maxx just shut down its A.J. Wright discount line, taking all 162 stores with it. Bebe Stores (Nasdaq: BEBE - News) closed its PH8 unit at a cost of 48 stores.
And Liz Claiborne (NYSE: LIZ - News), struggling with losses selling through its outlet stores, shut them down altogether (87 in all) in favor of putting out their product through J.C. Penney (NYSE: JCP - News) and QVC. "They really had no choice," says Davidowitz. "This at least gives them some cash flow for awhile."
Meantime, in case there was any doubt about the influence of Netflix (Nasdaq: NFLX - News) and iTunes on the entertainment front, movie and music sellers Blockbuster, Movie Gallery and Trans World Entertainment's (Nasdaq: TWMC - News) F.Y.E unit have all been high-tailing it out of many U.S. towns. Movie Gallery, which once boasted almost 5,000 stores, completed the liquidation of its remaining 2,400 units last summer.
Not that every store closing is a bad thing. Some companies are effectively using targeted closures to their advantage. Casual apparel chain Abercrombie & Fitch (NYSE: ANF - News) has shut down approximately 60 combined flagship and Abercrombie Kids locations, about 10% of its total. The downsizing is serving the company well: Comparative sales at the remaining stores have improved and analysts have upped their per-share earnings estimates significantly for the January quarter.
Sometimes less is more. Just don't tell that to Blockbuster.
Where You Might Not Shop in 2011
Stores closed: 50
Percentage of total: 100%
Once a mall staple, B. Dalton has been closing locations for years. Owner Barnes & Noble, which bought the chain in 1987, decided to shelve its low-volume arm altogether. It doesn't help that Americans read fewer books than they used to.