Holiday Sales Drop to Force Bankruptcies, Closings

From Bloomberg: Holiday Sales Drop to Force Bankruptcies, Closings
U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.

Retailers will close 12,000 stores in 2009. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports.

Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the International Council of Shopping Centers said last week, more than the previously projected 1 percent decline. That would be the largest drop since at least 1969, when the New York-based trade group started tracking data.

Probably 50,000 stores could close without any effect on consumer choice. Only retailers with healthy balance sheets will survive the recession.

About 200,000 stores may close in 2009, compared with a record 160,000 in 2008. Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009.

From CNBC: As More US Retailers Fail, Malls Could Be Next Victim
The dismal holiday shopping season may sink some retailers and could take down some U.S. malls struggling with rising vacancies, softening rents and their own large debt loads.

At the end of the October, the International Council of Shopping Centers (ICSC) forecast that national chains would announce 6,100 store closings in 2008 and 3,100 in the first half of 2009.

That was before stores such as Circuit City and KB Toys filed for bankruptcy.

But factoring in nonchain stores and others classified as retail by the Census Bureau, ICSC predicted 148,000 retail stores would close in 2008 and 73,000 would do so in the first half of 2009.

During this holiday season until Christmas, retail chains, which are among the best bankable mall tenants, saw apparel sales fall 19.7 percent, according to SpendingPulse, which tracks holiday sales.

A general rule of thumb is that a mall can stay afloat if 30 to 40 percent of its tenants remain in business. But that percentage will have to be higher to sustain those malls that are burdened with debt, such as General Growth Properties, the No. 2 U.S. mall owner.

Reis forecasts that the fourth-quarter mall vacancy rate could top 7 percent, the highest since Reis began tracking regional mall performance in the start of 2000. It sees fourth-quarter mall rents falling by 0.1 to 0.4 percent. All retail properties, not just large malls, may see their rents fall by an average of 3.5 percent in 2008 and 5.5 percent in 2009. Economic vacancy now stands at about 13.5 percent and is expected to peak at 17.3 percent in the third quarter of 2009.

"If it's one of the anchor tenants, typically that has a disproportionate effect on the overall revenue streams of the location given that the anchors are involved in a lot of foot traffic to the center." Bankruptcies among retailers are likely to rise in the first quarter of 2009.

But given the long leases and lengthy process of closing a store and winding down operations, its effect on the mall owners may not kick in until next year and 2010 when landlords are unable to release shuttered spaces.