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AP: Retailers Brace for Major Change

Grim AP article last week on retail projections:

Analysts estimate that from about 10% to 26% of all retailers are in financial distress and in danger of filing for Chapter 11. AlixPartners LLP, a Michigan-based turnaround consulting firm, estimates that 26% of 182 large retailers it tracks are at significant risk of filing for bankruptcy or facing financial distress in 2009 or 2010. In the previous two years, the firm had estimated 4% to 7% of retailers then tracked were at a high risk for filing. Retailers are particularly vulnerable to a recession because of their high fixed costs.

Beyond the consumer-driven shift to online, the financial flexibility of direct/online for retailers (eg, vs. the long-term obligation of store leases) will also accelerate the shift from stores to web.

My prediction: 2009 will be very rough on retail, with winners gaining significant share (even if on lower gross revenues) and losers vanishing. The fate of many stores will rest more on how they've managed their balance sheets than on the traditional factors of merchandising, pricing, and branding.

(Also on the subject of 2009 predictions, but unrelated: Doug Kass's 20 "possible improbable" predictions for 2009 -- he offers an interesting perspective.)

stormy seas

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