Horrible Holiday Will Mean More Retail Casualties to Come

Merchants and financial experts typically wait until after the fourth quarter to declare the holiday season a bust.

But with news like Talbot’s announcing Friday it was immediately seeking a buyer for its J. Jill business and Circuit City filing for Chapter 11 bankruptcy protection Monday, many industry watchers doubt holiday 2008 will even live up to its already low expectations.

“This Christmas season is shaping up to be a horrible one, so there will be a lot more victims of the economy along the path,” says Stuart Rose, managing director for investment bank Tully & Holland.

The fact that announcements like J. Jill and Circuit City are coming in November rather than after the holiday season shows that these are not typical economic times, says Richard Kestenbaum, principal at financial advisory firm Triangle Capital.

“If you said a year ago that a retailer of that Circuit City’s size and scale would go bankrupt in November, most people would have said you were crazy,” says Kestenbaum. “It’s a terrible environment for retailers.”

Indeed. Brad Anderson, vice chairman/CEO of Best Buy, said in a release that since mid-September, “rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen.”

But it’s not just the recession, Kestenbaum says; “it’s the pivoting of our financial structure.” The ongoing credit crunch means struggling retailers can’t get the funds they need to get through this rough period.

Banks are clamping down on their lending, Rose says, “and that’s going to force a lot of retailers into making some hard decisions.” He would not mention names, but says his company this week had to turn down some struggling retailers who were looking for financial help.

And if investment firms are not willing to take on struggling retailers, Rose thinks it may be liquidators like SB Capital Group or Gordon Brothers Group who step in and bail out the likes of Circuit City come January.

“Whatever they can get is better than not getting anything at all,” Rose says. “Maybe even someone like Sun Capital (the private equity firm that owns the likes of Hanna Andersson and Hickory Farms) will buy a J. Jill, or a firm who buys troubled assets when they bottom out with the hopes it can turn a profit.”

Kestenbaum, too, sees that bottom-feeder possibility coming for many investors. “Where there are troubles, there are opportunities,” he says. “Clearly there will be bargains out there for firms that want to buy a struggling retailer.”

There’s one tricky question, though, he notes: “How do you make a judgment in this environment about who the survivors are going to be?”