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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“Retailers can’t afford to drag with the stores performing at the bottom of the chain anymore,” said Kathy Bronstein, former chief executive of Wet Seal, who was abruptly restructured out of her own job in February, after just two slumping quarters. Before, if a retailer wanted to renew a lease of a healthy store, he might be egged on by a developer to renew two crummy locations to get the one good one. “Those days are gone,” Bronstein said.

Some of the current restructuring is an aftereffect of 9/11, Questrom noted. “There is also an issue of competition and providing competitive prices,” he added. “The customer wants to buy unique products at affordable prices.” Retailers must cut costs to cut prices.

Following May Co.’s decision last month to close 32 Lord & Taylor units and focus the chain on the Northeast and Midwest, as well as one Famous-Barr and one Jones Store, restructurings at other retailers are expected.

“I think there definitely could be more to come,” said Deborah Weinswig, senior retailing analyst at Smith Barney. “May stock jumped from $20 to $27 on news of cutting stores. That sends a loud message that everyone [on Wall Street] wants stores to be cut. We are overstored.”

“All retailers will be much more focused on inventory management to improve profitability and capital structure, and we will see more focus on store performance,” said Mary Ann Domuracki, director of Financo Restructuring Group. Retailers, she said, will be looking for higher sales productivities, to get more cash out of them, and if they don’t, “They won’t leave them open as long as they used to.”

According to sources, Sears recently fired much of its real estate staff, put in a new team, and could close another 10 to 15 percent of its store base to weed out underperformers and capitalize on the real estate, where there is huge hidden value. More than 50 percent of Sears’ retail locations are owned by the company. The company operations include 850 department stores, 800 automotive centers, 200 hardware stores and 21 Great Indoors, including the three to be closed. Various Sears properties could be redeveloped into offices, movie theaters, hotels, or other types of retailers.
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