Archive for August, 2008

Boscov’s Files for Bankruptcy

by David Bodamer August 4th, 2008

Regional department store chain Boscov’s filed for Chapter 11 bankruptcy protection and has put itself up for sale. So that’s Mervyns and Boscov’s in less than a week. Things are definitely getting bloody out there.

Boscov’s plans to close 10 unprofitable stores. That’s an interesting number for Boscov’s. It’s the same number of stores the company bought from Federated back in 2006.

Boscov’s joins more than a dozen retailers to go bankrupt in the last year, including Bombay Co, Goody’s Family Clothing Inc, Linens ‘n Things Inc, Mervyn’s LLC, Sharper Image Corp, Shoe Pavilion Inc and Steve & Barry’s LLC.

Boscov’s did not immediately return a call seeking comment on possible job cuts.

In a court filing, Executive Vice President Michael Hughes said Boscov’s was hurt as the housing market collapse, skyrocketing energy and gas prices, and higher food costs caused consumers to spend less on discretionary items. He also said credit market conditions caused many vendors to tighten terms.

“The recent addition of these pressures and constraints to a broadline retailing industry that already operated on thin profit margins has forced the debtors into inadequate liquidity levels,” Hughes said.

Link.

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Mervyns’ Effect on Mall Owners

by David Bodamer August 4th, 2008

Here’s a good analysis from the Los Angeles Times on the effect the troubles at Mervyns will have for mall owners in California.

And any potential closures would probably be felt in California, where Mervyns operates 129 of its 177 stores.

Retail vacancy rates were up in all eight major California markets tracked by Reis Inc. in this year’s second quarter. The Inland Empire was the hardest-hit area in Southern California, with the vacancy rate rising to 7.2% from 5.2% in the same period last year.

The increase reflects the housing downturn, said John Husing, an Inland Empire-based economist.

From 2003 to 2005, as the housing market gathered steam, 80,000 people were migrating inland from the coast annually, and retailers were hot on their heels, Husing said.

Last year, as real estate turned, the migration slowed to 35,000. Many new buyers were forced to abandon their homes because they couldn’t afford the payments.

“Retail doesn’t recover until housing recovers, and housing isn’t going to recover until you cut off the flow of foreclosures,” Husing said. “And when is that going to recover? Nobody knows for sure.”

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Starbucks Will Shrink Further in 2009

by David Bodamer August 4th, 2008

Next year Starbucks will open about 165 stores. However, it will close 225. So the net result is the company is planning on shrinking its store base by about 60 locations next year.

Starbucks is shrinking again. After years of headlong expansion, the Seattle-based coffee company said Wednesday that it has cut its fiscal 2009 U.S. store-opening target to “approximately a negative 60 net new stores.” The company, which just weeks ago set out plans to close 600 stores in a bid to cut costs, said the negative store-opening forecast reflects a planned decline of 225 company-operated locations, partly offset by the opening of 165 franchise stores.

Link.

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Another Day, Another Retailer Cutting Back

by David Bodamer August 4th, 2008

Office Depot Inc. yesterday reported a second-quarter loss as a decline in spending by retail consumers and smaller businesses in the United States hurt sales. It said it would cut store openings this year.

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To cut costs and reduce capital spending, Office Depot said it would scale back store openings and slow remodelling efforts. It plans to open 15 stores in the second half and a total of 66 for this year, down from a previous forecast of 75 stores for 2008. For 2009, it plans 45 new stores.

The company also said it was reducing its North American staff, but didn’t disclose numbers.

Link.

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New Concerns About CMBS Defaults

by David Bodamer August 1st, 2008

Defaults on commercial mortgage-backed securities issued at the height of the credit bubble will more than quadruple from their current levels under conditions in the US economy expected by the commercial real estate industry, according to a report from Fitch Ratings.

Borrowers would default on an average of 17.2 per cent of securitised commercial mortgages over 10 years if the US economy dips into a recession with 0.2 per cent contraction in growth, compared with current very low default rates of 4 per cent, a rise of 330 per cent.

Such a scenario corresponds “to the negative predictions currently offered by commercial real estate experts”, analysts at Fitch wrote. This would happen if the economy suffered a similar downturn to 1991, and assumes that the value of properties covered by the deals falls by 25 per cent, and cash flow from rents by 15 per cent.

The higher defaults under such a slowdown compares with a historical default rate of 7.9 per cent, and with the milder scenario that Fitch thinks is more possible of 0.8 per cent economic growth and a 13.7 per cent rate of default.

It would cause non-investment grade bonds – B and BB rated CMBS – to suffer loss rates of 100 per cent and 95.9 per cent, respectively. Meanwhile, 30.6 per cent of the lowest-rated investment grade bonds – BBB rated – would experience losses, while loss severities would rise to 37.9 per cent from an historical average of 33.5 per cent.

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