A Month Of Black Fridays

With the worst holiday shopping season in decades now in the books, it's looking more and more like many retailers on the edge will soon be pushed over the cliff into bankruptcy.

The ugly sales year that was 2008 will haunt U.S. retailers in 2009, with industry experts warning that disastrous holiday sales will spark a domino effect of store closures and bankruptcy filings.

And, with thousands of fewer stores, the "shop-'til-you-drop" mentality that has characterized American consumerism could be coming to an end.

"There's going to be a massive sea change in the retail landscape," said Nina Kampler, executive vice president with Hilco Real Estate, which advises retailers on their property management.

She said many strip shopping centers already have multiple big-box vacancies after several large stores filed for bankruptcy in 2008. Some eventually went out of business.

When that happens, the smaller stores in the strip centers can't attract the requisite customer traffic to stay productive and profitable.

Michael Burden, principal with industry adviser Excess Space Retail Services, expects as many as 14,000 stores will close in 2009. "We could see among the highest ever number of closures," he said.

You figure if those 14k stores employ an average of twelve people a piece, that's 168,000 people out of work. Add up the domino effect of anchor stores closing and leaving strip malls, shopping centers and entire malls too weakened to operate, and that number can go much higher.

As retailers' sales continue to tumble and mall traffic evaporates, one of the biggest challenges for sellers is their rent occupancy costs.

Kampler explained that the amount of rent a retailer can comfortably pay for a given store location is proportionately related to the volume of sales generated at that location.

Ideally, she said a retailer's occupancy cost should be equal to 10% of its sales. But a long stretch of slumping sales and rising mall vacancies can dramatically push up the occupancy costs.

"Once rent and occupancy costs hit the 20% to 25% of sales threshold, you are treading water," she said. "You can't run a viable business with those numbers".

Also, once a retailer faces a cash shortage, the likely next step is to file for bankruptcy protection. To that end, Kampler predicts that retail bankruptcy filings will " be huge" in January.

But given the implosive impact of the overall economy on the retail sector, Kampler said filing for bankruptcy could be the death knoll for those merchants.

"It used to be that when [a company] filed for bankruptcy, it was to restructure its debt and realign its operations in order to emerge alive," she said.

"Now it's almost impossible to restructure," she said, pointing out that a significant number of retailers that did file for Chapter 11 bankruptcy protection this year have eventually gone into liquidation.

In other words, the jobs lost in the retail sector are going to be gone for a long, long time. Seeing that happen in manufacturing is scary enough, there's plenty of expensive factory equipment that goes idle when factories close, and changing them over to another manufacturer is expensive and tough to do. As a result, the Bush economy saw those manufacturing jobs replaced with retail jobs.

But seeing that kind of thing happen with retail jobs means there's nowhere to go to replace those jobs easily. Obama's "green jobs" program seems to be more necessary than ever.

The US Government as employer of last resort? It's worked in America's past...and it may very well be the key to America's future.