Sunday, April 20, 2008

Retail Bankruptcies Rise

Retail chains are facing the highest bankruptcy levels in three years, as consumer confidence and spending has fallen, and credit markets have tightened.

The New York Times reported that eight mostly midsize chains have filed for bankruptcy since last fall, including furniture stores Levitz, Bombay, Domain, and Wickes, electronics retailers Sharper Image and Harvey Electronics, housewares seller Fortunoff, and catalog retailer Lilian Vernon. Retailer Linens 'n Things is also considering filing for bankruptcy, and it recently deferred an interest payment to lenders. Linens 'n Things is trying to avoid bankruptcy, and was in talks with creditors on a possible capital restructuring, reports Reuters, and is also looking for a buyer, reports the NY Times.

Some retail chains are also closing a number of stores in response to the economic downturn, with up to 5,770 store closings expected nationwide in 2008, predicts the International Council of Shopping Centers. This is a 25% increase over 2007.

Retailers hope to benefit from the $105 billion in tax rebates that are being distributed beginning in May, though a survey by the National Retail Federation indicates that only $43 billion of the rebates are expected to be spent at the retail level.

Law firms are seeing an increase in bankruptcy work, and anticipate that bankruptcy filings will be brisk for some time to come.

Bankruptcy law changes in 2005 affected retailers by making reorganization more difficult, causing many troubled retailers to hold on longer than if they were able to file under the more debtor friendly laws that existed before. The changes may also force companies to pay suppliers before paying salaries or honoring customer obligations like gift cards.

UPDATE: Linens N' Things declared bankruptcy May 2. The bankruptcy court agreed to let it continue to honor customers' gift cards.


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