Bankrupty in retail expected to increase

Bankrupty in retail expected to increase

Retail store closings are expected to rise to the highest level in four years.

NEW YORK (AP) — A weak holiday season and a struggling economy led retailers Sharper Image Corp. and Lillian Vernon Corp. to file for bankruptcy this week, and analysts predict others could soon follow them as consumer spending worsens.

“You’ll see a record number of bankruptcies over the next 50, 100, and 1,000 days,” said Burt P. Flickinger III, managing director of the New York-based retail consulting firm Strategic Resource Group. “Consumers are cash and credit constrained. They’re out of purchasing power.”

Both Sharper Image, known for its high-tech novelty gadgets, and Lillian Vernon, which sells low-cost gifts and gadgets through its catalog and Web site, have long been plagued with falling sales. But retailers across the sector have been laying off staff and closing stores as consumers cut back on discretionary spending.

The International Council of Shopping Centers projects 2008 store closings could reach 5,770 stores in 2008, the largest number of closings since 2004. Retailers as a whole reported their worst January same-store sales in almost four decades.

Flickinger said the problem is partly food and fuel inflation. While consumers used to pay 10 cents of every dollar for food and fuel, they now pay up to 20 cents per dollar.

“Companies are contracting and collapsing,” he said. “You’ll see it in food and drug, discount and department stores, as well as specialty stores and dollar stores. Every major form of retailing.”

Retail analyst Patricia Edwards of San Francisco-based Wentworth Hauser and Violich said while Sharper Image and Lillian Vernon were the “weak links in the herd,” others are likely to follow as things weaken — or seem to do.

“Even if we never hit a classical recession, the consumer is in a recession,” she said.

In an affidavit filed with the U.S. Bankruptcy Court for the District of Delaware on Tuesday, Sharper Image Chief Financial Officer Rebecca L. Roedell said the company has experienced declining sales since 2004 and recorded net losses in fiscal 2005 to 2007.