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Kai Ryssdal: Discount retail’s an easy part of the economy to pooh-pooh, you know. Tight profit margins and consumers loyal only to the lowest prices mean it doesn’t get much respect.
Steve & Barry’s, the discount clothing chain, has been teetering on the edge since it defaulted on a loan made in March, and its bankruptcy filing today blames — surprise, surprise — tight credit markets, higher costs and lower consumer spending.
But there could be many more filings like it as the economy squeezes companies that loaded up on debt and rushed to open stores during the boom.
From New York, Ashley Milne-Tyte reports.
Ashley Milne-Tyte: The fate of fashion stores like Steve & Barry’s could have an effect on higher-end rivals.
Burt Flickinger runs consumer consulting firm Strategic Resource Group.
Burt Flickinger: Every retailer worldwide will have to learn the lesson from Steve & Barry’s.
He says take fast-expanding European chains like H&M and Zara:
Flickinger: Those companies will question and possibly slow down their expansion in the United States and other industrialized countries.
Flickinger says many retailers, including Wal-Mart, have also been on an expansion tear in recent years. They leased masses of retail space and borrowed heavily to do so.
Holly Etlin is a managing director with Alix Partners, a restructuring company. She says many retailers today have lenient financing agreements that let them spend freely until it’s too late.
Holly Etlin: Until, literally, they’ve walked to the very end of the very smallest branch and they’re about to fall off. In other words, they’re completely out of liquidity.
And when the companies realize they need more cash, she says, they find the funding just isn’t there.
To slim down, retailers are using various tactics. Etlin says they’re being very careful about what they buy for the holiday season.
Etlin: They’re looking at their store base to see if there are stores that they can exit and frankly, even on the existing store base, they are reaching out to major mall landlords and others for rent concessions.
But mall owners are being squeezed, too, so retailers can’t count on them for a break.
In New York, I’m Ashley Milne-Tyte for Marketplace.
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