Big Retail Chains Close Doors

Dec. 30, 2008— -- Retailers were hoping against hope that door-busting sales could salvage the holiday shopping season. It didn't happen.

The amount of money spent at the nation's retailers from Nov. 1 through Christmas Eve was down 5.5 percent to 8 percent, compared to last year, according to MasterCard SpendingPulse, which tracks retail sales for all forms of payment, including check, cash and credit card.

The recession and factors like bad weather over the last two weeks contributed to the slowest retail holiday season in 38 years. With such dismal shopping numbers, Strategic Resource Group estimates that 160,000 stores will have gone out of business in 2008 and 200,000 more will shut down in 2009.

"We're going to close malls, we're going to close chains, we're going to close stores," said Howard Davidowitz, the chairman of retail consulting firm Davidowitz & Associates. "The American standard of living is changing forever."

Analysts estimate that 2,000 to 3,000 malls will go bankrupt by June 2009 as big chains like KB Toys, Linens n' Things and the Sharper Image go out of business entirely, and other big-name stores, like Ann Taylor, Talbots and Foot Locker shut dozens of low-performing locations. Even huge department stores, like Dillards, Saks and Nordstrom are scaling back.

In recessions past, malls could depend on consumers with expensive taste, the so-called "aspirational shoppers," to drive sales. But these days, even aspirational shoppers are scaling back.

"That aspirational customer who traded up when times were good, she's stopped shopping," said Deb Weinswig, a Citigroup retail analyst. "So, brands she had traded up to, such as Gucci and Prada and Louis Vuitton, she's just not buying right now."

With the shifting shopping habits of recession-stricken consumers, even luxury brands have not been immune from the fallout. Fashion giant Chanel announced over the weekend that it will lay off 200 employees from its Paris staff. The luxury company LVMH cancelled plans for a Louis Vuitton store in Tokyo.

Retailers Go Out of Business

Stores that are suffering huge losses are forced to lay off employees, and the vicious cycle intensifies when chains try to borrow money from struggling banks.

When Circuit City filed for bankruptcy in November, the company was still able to get a $1 billion loan to keep most of its stores open and stay afloat. But with banks in trouble and credit markets frozen, other struggling chains may have no choice but to liquidate and turn off the lights.

If there is any consolation, experts say that after a massive retail boom, the country may not need a Starbucks on every corner and a Foot Locker in every mall.

"We have twice as much retail space in America as what the shopper needs," said Burt Flickinger, managing director of the Strategic Resource Group.

But what we need and what we want are two different things. 2009 will teach us the difference, with every trip to the mall. With stores closing their doors, the way American consumers shop may change for years to come.