Today's retailing reality is that business is not good for many and for others it's even worse. As a number of recent articles have pointed out, large numbers of retailers have been closing stores, laying off staff and otherwise looking to reduce expenses in light of the consumer pullback in purchases in recent months.
Many, including the Bombay Co., Domain, Fortunoff, Harvey Electronics, Hoop Holdings, Levitz, Lillian Vernon and Tweeter Home Entertainment, have found that cutbacks simply weren't enough and chose bankruptcy, either for the purpose of reorganizing or liquidating a business.
"You have the makings of a wave of significant bankruptcies," Al Koch of the corporate turnaround firm called AlixPartners recently told The New York Times.
"For years, no deal was too ugly to finance," he said. "But now, nobody will throw money at these companies."
Speculation had run rampant last week that another retailer, Linens 'n Things, would soon be seeking bankruptcy protection. The retailer acknowledged missing a $16.1 million payment to its creditors and was said to be working with lenders to restructure its debt obligations.
According to the Bernard Sands Weekly Ratings Alert, some of Linens 'n Things' largest suppliers have cut off shipments to the company fearing that GE Finance may withhold the chain's $700 million revolving line of credit.
Last Tuesday, Linen 'n Things' CEO Robert DiNicola issued a statement. "Despite the strides that LNT has made to improve the operational side of its business over the past two years, these measures have not produced acceptable financial results. The increasing deterioration of the credit markets and the residential real estate meltdown, both stemming from the turmoil in the subprime mortgage market, and the resulting downturn in consumer spending, especially in the home sector, have combined to create additional and acute financial challenges for the Company and the retail sector as a whole."
One day later, the chain announced that it had retained Financo, an investment banking firm, to assist the company in evaluating various strategies for the company.
Mr. DiNicola said of the Financo hiring, "We are committed to exploring all reasonable avenues in our effort to strengthen the Company and to adopt a financial solution that recognizes the inherent value of the Linens 'n Things' business."
Discussion Questions: What do you see as the primary causes behind the number of chains filing for bankruptcy? What lessons are there to be learned by other retailers so they can avoid a similar fate?