Retailers On The Ropes

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This holiday season in North America was the worst on record, as many retailers struggled to make it through. Although inventory and staffing were cut to the bone, sales were even worse than expected. Many stores are wondering if they will continue to survive if the trend continues.

 

In the 2008 holiday season, many retailers were caught off guard, having ordered lots of inventory just as the recession hit. The result was that there were bargains everywhere. We had boxing day sales going into boxing month sales, as stores tried to offload their merchandise at fire sale prices. This time many retailers cut back on the levels of inventory to protect themselves from overstocking, but the shoppers did not come.

A lot of people have lost their jobs in 2009, and were unable to buy the fancy things they used to. They were trying to hold onto their homes or their cars, and were still up to their necks in debt from previous years. Now that the banks are getting more careful about issuing consumer credit cards, people couldn't shop even if they wanted to. And finally, the few people who still had jobs, were saving all they can, expecting the worse to happen sometime in 2010.

 

The result was a very quiet holiday season. Many retailers use a revolving credit to buy stock, and they can't get more stock until they sell what they have now. This puts them in a bind to sell below cost, if they can, and to get more credit to cover operating costs. Banks are reporting that almost everyone is hurting in the retail sector.

For the mom & pop stores, they are considering getting out of the business. The problem is to find a buyer for an overstocked store with a ton of debt. Not many people are willing to extend themselves in the first place, and especially not for a negative equity situation as exists now. Also, many small businesses are backing out of their leases or defaulting on loans. The way things are panning out, there will be a lot of vacant store fronts. In this area some of the malls are at about 50% vacancy. This is about the point where they lose critical mass to attract enough shoppers, and then the anchor stores move out and the mall closes.

Now you may read on other websites that they think there was a surge of last-minute holiday shoppers leading to modest December sales gains and healthy profits. This is all lies propagated to con consumers into spending more. Of course, if enough people believe the lies, perhaps...

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