It comes as no surprise, but WWD is predicting rough seas ahead for 2009. The deadly combination of tight credit and limited spending is
setting the stage for a dramatic and frightening start to the new year. Especially for smaller retailers like boutiques.
Financial and credit sources expect 2009 to be difficult from beginning
to end, but the first few months will be critical as stores weigh the
damage from weak holiday sales, heavy markdowns to drive traffic
and lower than expected weak fourth-quarter profits.
William R. Wagner,
partner in the banking and finance practice at the Baker & McKenzie
law firm, said, “I think we will continue to see many financing issues
throughout 2009. We have certainly hit some difficult times. Some
people think we are at or near the bottom. So far, I haven’t seen
liquidity hit the market yet. I expect we’ll see an increasing
combination of bankruptcy activity and distressed investing during the
next six months.”
Wagner said retailers are significantly
exposed to the liquidity crunch since they
operate on a “seasonal
buy-sell curve, and this downturn, in particular, is hitting their
biggest season, essentially handcuffing them.”
In the current
economic environment, most retailers face increasing pressure to
meet their financing obligations under loan agreements. That pressure, combined with the uncertainty over how much consumers were willing to spend during the holiday season, led to major spikes in
pre-holiday discounting as retailers tried to end the holidays with enough cash to finance the next selling season.
“This is so
pronounced because every retailer out there is competing against the
other,” Wagner said. “Even Nordstrom is competing with TJ Maxx, trying
to get that last dollar from the consumer. Those that aren’t successful
may have real liquidity issues in the first quarter of 2009. Lenders have now returned to very tight credit
policies. The credit markets are anything but robust, and companies
that were able to borrow on liberal terms in the past do not have the
same access to cash, creating significant refinancing risks ahead. I
believe 2009 will continue to be pressured.”
the threat smart retailers will have to streamline inventories and pair way down
and start turning faster. Some are even canceling or holding back
“Most consumers don’t have any availability on their
credit cards and are scaling back. All retailers are affected, from
consumer electronics to apparel. It will be an interesting time
starting in the middle of January and into February when management and
the lenders begin evaluating where they are,” he said.
the times “unprecedented,” he foresees continued pressure throughout
next year and is expecting more bankruptcies and corporate downsizing
after the holidays.
Read the rest of "Finance Execs Take Dim View of 2009"
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