Home Business How The Grinch Stole Christmas For Retailers And Casual Dining Restaurants

How The Grinch Stole Christmas For Retailers And Casual Dining Restaurants

retail

2016 saw a surge in retail bankruptcy filings, most of which were blamed upon shifts in consumer spending behavior. Some  that filed for bankruptcy reorganization or liquidation were Backwoods Retail, Nasty Gal, Pacific Sportswear, Aeropostale, Direct Buy, Sports Authority, Vestis Retail Group, Golfsmith, Movie Stop Hancock Fabrics, Total Hockey to name a few.

Additionally, just before Christmas, the Limited stores announced that it will be filing a bankruptcy proceeding shortly after the new year, and possibly close and liquidate all of its stores. 2016 also saw a surge in bankruptcy filings of significant franchisees of McDonald’s, Burger King and Long John Silver’s, as well as the parent entities of Sweet Tomatoes and Logan’s Rodehouse. These, too, were blamed on a change in consumer discretionary spending.

Since most retailers and many casual dining establishments expect to “make their year” during the holiday season, failure to do so leaves them in a precarious financial position for the upcoming new year. This holiday season’s deep discounting that began shortly after Thanksgiving substantially eroded profit margins on sales This deep discounting that proliferated on line, television and print advertising for both retailers and casual dining establishments, created a situation that even maintaining volume of sales may not have created the profits needed in order to extricate many retailers and restaurateurs from what has been the disastrous financial year.

All of this portends a bleak future for retailers and casual dining establishments in areas of South Florida where shopping malls (with dining on outparcels) have been struggling due to changing neighborhood demographics.

With the recent report by Sears of a wider third-quarter loss than the prior year with sales declining 7.4% at established stores, Sears, (and perhaps its affiliated entity Kmart) had one last chance of survival during this holiday season, unless its principal owner chooses to invest even more money into this obviously sinking ship.  There are a number of older Sears locations in Florida that are ripe for closure and where the neighborhood will not support a replacement large retailer.

With business bankruptcy filings increasing at a rate not seen since the beginning of the 2008/2010 recession, the handwriting is on the wall that notwithstanding the euphoria that seems to pervade the equity markets, Main Street purveyors of goods and services are suffering greatly.

Factors, lenders, manufacturers and distributors have curtailed available credit for the purchase of goods for struggling retailers. With the uncertainty of the enforceability of consignment agreements brought on by the litigation in the Sports Authority bankruptcy case, the availability of inventory for financially struggling retailers has greatly diminished. Savvy consumers are only frequenting retailers with large inventories that are deeply discounted.

Even more troubling will be the loss of retail and food service jobs for those who are terminated as a result of store and restaurant closings, as these jobs cannot be replaced in the shrinking retail and food service sectors. These employees, who are usually at the bottom of the pay scale, are clearly the most vulnerable in today’s consumer economy.

Furthermore, shopping mall owners, operators and other tenants will be substantially impacted by the closure of retail establishments as a result of bankruptcy liquidations. This situation creates a domino effect that will extend far beyond the entities that need bankruptcy protection, and creates a difficult situation for retailers in Florida that are not financially prospering.

Charles Tatelbaum is a director and the creditors’ rights/ bankruptcy practice group chair for the Fort Lauderdale law firm of Tripp Scott. He has been practicing bankruptcy law for 52 years, has handled some of the most complex bankruptcy cases in the U.S. and Europe, and is a former instructor in business law and bankruptcy law topics at the Francis King Carey Law School at the University of Maryland.

LEAVE A REPLY

Please enter your comment!
Please enter your name here