Surviving the season: Retail landlords worry that tight holiday budgets could doom some retailers

Keywords Real Estate

Retailers usually get that Christmas-morning feeling of anticipation for the holiday shopping season.

This year, many are just hoping to survive.

As consumers tighten their spending to cope with higher prices and shrinking savings, stores big and small are feeling the pinch. Some stores, including Linens ‘n Things, have filed for bankruptcy and plan to liquidate. Others, like Circuit City, still are fighting for survival.

The holiday shopping season is looking more like a make-or-break period than the annual windfall-an outlook that has retail landlords nervous and willing to roll up their sleeves to retain tenants and stay in touch with backups.

Most observers are forecasting at most a 2-percent increase in holiday sales-a figure considered a big disappointment any other year, said Ivan L. Friedman, the CEO of New York-based Retail Consulting Services Inc.

“Nobody’s going to do OK based on holiday standards,” Friedman said. “I don’t believe the public is in a position this year to spend anywhere near what they’ve spent in prior years.”

Friedman expects several more bankruptcy filings before the holidays, which would hurt even the strongest retailers since they would have to go headto-head with liquidation sales.

The sour holiday season could be particularly bad for Indiana, said Richard Feinberg, a researcher with the Purdue Retail Institute and director of the Center for Customer-Driven Quality.

He’s expecting retail sales to be flat or at most 2 percent above last year, when sales jumped 5 percent. That would make it the worst holiday shopping season in more than 15 years.

“Indiana has a higher unemployment rate than the national average and may experience tougher times,” Feinberg said in a statement. “In areas hit by auto and financial layoffs, and job losses, the retail pain may even be greater.”

The importance of the holiday season for many retailers has not been lost on landlords. They’re beefing up leasing efforts, including marketing and incentives such as free rent for up to a year.

Landlords also are girding for the potential loss of tenants to bankruptcy.

Already, some big names have fallen. New Jersey-based Linens ‘n Things plans to close its remaining 371 stores within the next few months. The bankrupt homegoods chain already has closed more than 200 locations. California-based retailer Mervyn’s is closing its 150 stores.

And at press time, Virginia-based electronics retailer Circuit City was considering whether to close 150 of its 682 stores in a last-ditch effort to avoid a Chapter 11 bankruptcy filing before the holiday shopping season starts.

Other retailers, including Texas-based Pier 1 Imports Inc. and Michigan-based bookstore chain Borders Group Inc., are saddled with high debt and falling sales and have been mentioned as potential candidates for bankruptcy.

“Right now, landlords are always looking for backups for anyone who may be vulnerable,” said Nick Wright, a real estate broker with the local office of Midland Atlantic. “They’re doing whatever they can to hold onto existing tenants.”

People will still shop, and malls will still be frenzied during the holiday season. But it will take retailers more than usual to captivate shoppers who mostly are expected to stick to gifts they can afford, Wright said.

Discounters like Wal-Mart and Target should continue to thrive, along with shops like Dollar Tree. Others could struggle.

One upside will be better deals for shoppers.

“There better be-that’s the only way they’ll be able to compete,” Wright said.

“We will know the outcome at the end of January,” he said. “That’s when the cream will rise. It’s like a bunch of mice in a barrel of cream; the ones that churn the hardest will turn it into butter and climb right out.”

Feinberg expects more promotions from retailers, along with a growing reliance on e-mail promotions, which are cheaper and more easily changed than print advertising. He expects online shopping to grow 10 percent over last year.

The big names in home improvement-Lowe’s, Home Depot and Menards-should be able to weather the storm, but Friedman expects at least one of the big three of office supply chains-Staples, Office Max and Office Depot-could fall. He says Staples is strongest.

Casual restaurants also are hurting, and many names may not survive.

“The ones that were hanging on by their fingernails now will not be making it; they may not even make it to the holidays,” Friedman said. “Everybody’s frightened, and I do not see a turnaround until at earliest the second or third quarter of 2009.”

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