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Road to Restructuring: Retailers Drive Toward More Cutbacks

Even without the high drama of a Chapter 11, restructuring continues to be the order of the day across retailing.

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NEW YORK — Even without the high drama of a Chapter 11, restructuring continues to be the order of the day across retailing.

“You will see restructuring over all industries,” stated Allen Questrom, chairman and chief executive of J.C. Penney Co. “Whether it’s department stores, airplane manufacturers, telecom, state governments or the federal government, all have to restructure to attain a more effective cost structure. Now it’s become apparent that the power system has to be redone. It’s obviously convoluted, but nobody thought about it until the lights went out.”

At Penney’s, $200 million more in expenses will be cut over the next year and a half, as part of the chain’s five- to six-year turnaround strategy.

The retail restructurings spur further concerns over unemployment, which is a growing political issue in the run-up to next year’s presidential election. Store closures and cutbacks could result in further job losses in the retail sector, which saw year-on-year declines in jobs in August. (For more on August job figures, see page 2).

According to executives and industry observers, possible moves in the months ahead include:

  • At Sears, following the sale of its credit operation, recent remake of the real estate team and announcement of three Great Indoors closings, there’s speculation that 10 percent or more of the remaining store count could be eliminated. Sears currently operates about 1,850 stores.

  • Regionals are likely to consolidate and merge. For example, Bon Ton late last week made a definitive proposal to merge with Elder-Beerman Stores Corp.

  • While the junior sector has already cut back, there’s still plenty of fat there, with companies such as Wet Seal and Charlotte Russe.

  • Gap Inc., which has already shrunk its Gap square footage in major urban areas, could shrink certain Old Navy stores, which are said to be overspaced in many locations.

Retail sources and analysts also cite Kmart, which emerged from Chapter 11 bankruptcy in May after shutting 600 stores and firing 37,000 workers, as well as Mervyn’s, the bankrupt Eddie Bauer, Dillard’s, Stage Stores, Gottschalks, Ann Taylor and Casual Corner as among the chains needing alterations.
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