STORES Magazine - November 2008 - (Page 28)

EXECUTIVE SUITE / COVER STORY Retailers that operate “fast” fashion-type businesses may face more difficulty in the coming weeks because they’ve become accustomed to compressing the order cycle and sourcing goods closer to need. If they’re placing orders now, experts say they’re going to have a hard time getting credit to pay for them and may find themselves scrambling to fill the shelves. Already, there are reports of growing tensions between retailers and their suppliers. Generally, experts perceive retailers to be more powerful than their supplier base and suggest that they may be able to push inventory risk onto them — requesting, for example, that they hold more inventory in their DCs. Others tell a different story. With the credit freeze, some say suppliers are demanding alternative credit terms and accelerated payments from retailers. Insiders report that some suppliers have begun to treat big retail companies as if they were banks; manufacturers are telling their retail partners that if they want product they’re going to have to foot the bill because they’re struggling to get working capital. be foreign companies than U.S. “Strong companies.” retailers are Last holiday season, a number as good as of retailers received shots in the the strong arm in the form of foreign tourists companies in taking stateside shopping vacations. Lured by favorable exany industry.” change rates, tourists flocked to — Rick Darling, Li & Fung USA some of the nation’s biggest cities to scoop up luxury goods. Neither industry insiders nor retail analysts expect that to be the case this holiday season. Lease release ome retail companies have announced plans to scale back on store openings and remodels, and word has it that they’re now trying to work deals with real estate developers, too. David J. Rabinowitz, a partner at Sutherland’s New York offices and co-chair of the Retail Practice Group, says some developers are willing to negotiate with retailers — but emphasizes that they, too, have lending requirements to satisfy as well as co-tenancy obligations to consider. S “Consumers are finding it more difficult to borrow and tap home equity lines of credit as banks tighten their credit standards. This will continue to be a drag on retail spending well into 2009.” — Frank Badillo, TNS Retail Forward No white knights n the not-so-distant past, struggling retailers found white knights in the form of private equity firms. But there’s not much hope of someone with deep pockets swooping in to help retailers that may be in weakened positions now. “We are seeing hedge funds having to sell positions in retail stocks to meet margin calls,” Weinswig says. “Additionally, we’re seeing some increased short selling in retail stocks as a substitute for hedges in financial stocks.” O’Hara concurs. “What attracted private equity investors in the first place was what they perceived as a predictable, steady flow of cash from a retail operation and the potential for growth,” he says. “The question today is, who can predict cash flow or growth in this environment?” Most funds and private equity firms “have likely suffered losses that will limit their ability to invest in retail going forward,” Badillo says. “There may be the handful of firms that have cash and will use this as an opportunity to buy retail investments at low prices, [but these] buyers are more likely to I “Some developers are already sitting with vacant space based on retail bankruptcies earlier in the year, and they have a very real need to minimize the amount of vacant space in their centers,” he says. “In most cases, it’s in their best interest to work with retailers when they come to them for help, but every project is unique and, in balancing the risks and rewards of working with a vulnerable retailer, a developer must always consider the ramifications if that retailer ultimately files for bankruptcy.” As vulnerable retailers explore ways to minimize or mitigate risk, Rabinowitz encourages exploring all avenues. “This would include carefully reviewing their leases for exit strategies as well as talking with their developers about renegotiating or even terminating their leases.” While no one is attempting to sugarcoat the near-term challenges the retail industry faces, most acknowledge that such hardships often yield new ideas and business approaches that might not have emerged otherwise. “Strong retailers are as good as the strong companies in any industry,” Darling says. “All industries eventually find out who the leaders are and typically they are companies that adapt quickly to change, stick to the core competencies and use a down market to gain share over the competition.” StORES WWW.STORES.ORG 28 STORES / NOVEMBER 2008 http://WWW.STORES.ORG

Table of Contents Feed for the Digital Edition of STORES Magazine - November 2008

STORES Magazine - November 2008 Contents Executive Editor's Page President's Page Every Cup Counts What Shoppers Think Less Park Time, More Shop Time 10 Things You May Have Missed Numbers Worth Counting Full Price/Markdown Retail People Retail Held Captive First Look Concept2Watch Marketing Technology Custom Software PCI Compliance Data Security Arts Update Newsbeat LP Issues: Q&A Cover Story Surveillance Systems Online Fraud Industry Perspective LOEB Retail Letter Point of View NRF News Retail Crossword Retail Industry Calendar Last Laugh

STORES Magazine - November 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.