January 29, 2001,
Has anything that has happened in this wild opening month of 2001 come as a surprise? Honestly.
Wards' valiant effort to reset its stores to a more productive prototype was a step only made possible by the rollicking economy of the late 1990s. When the minority of your stores are providing the majority of your profit, you'd better have the ability to reset the remainder of your store base very quickly. Wards didn't, and the clock ran out.
JCPenney's plan to shutter 44 stores, Kmart's plan to shutter 89 stores, and Sears' plan to shutter four general merchandise stores-these are all the kind of "get real" moves that it seems only a change at the top can bring. One of the great difficulties of being a long-time retailer is that eventually you end up with a whole passel of locations that are no longer where they ought to be.
Bradlees got a temporary boost when Caldor sold out to Ames and its rivals' stores were closed up temporarily for refurbishment. Unfortunately, it lacked the wherewithal to lure back the customers that had already gone elsewhere. And the entry of Kohl's and Target into its markets tightened the race considerably. The happy times were a short-lived anomaly. And while the Bradlees' folks undoubtedly worked their hearts out to turn it around, it's unlikely that even they harbored any illusions about the company's long-term prospects.
The bottom line is that despite the rain of bad news that has fallen on the industry over the past few weeks, nobody has been blindsided here. It was pretty clear to most folks last August that we would be heading into rough waters. Now the waves are slapping at the decks, as everyone expected they would be.
The surest measure of how desperately folks needed some good news to temper the bad appeared last week when GE Capital supplied Ames with $800 million in financing, along with a higher borrowing base. True, a $4.50 share price may seem a fairly slender reed for some shareholders, but at least Ames has found a little something to help it breathe easier.
There was a second buoy tossed into the turbulent waters last week as well. ShopKo's new three-year, $600 million revolving credit facility covers just shy of $300 million outstanding under its previous facility, with roughly another $300 million left over to stabilize its finances. So there are 349 stores that will still have open-to-buy, even if they move very cautiously.
For retailers that haven't been entirely through the mill yet, there will be opportunities to strike some good bargains. That's not such grand news for vendors that are choking on inventory. And the great danger is that retailers will use those values to cut merchandise prices below where they may need to go.
In one of the great mistakes of the recession of the early '90s, upstairs retailers slashed prices mercilessly and went heavily promotional to keep traffic moving through the stores. The result was a consumer base that became trained to buy only on promotion. The prosperity seen in recent years has replaced promotion-oriented shopping with value-oriented shopping.
It would be a pity if retailers turn the clock back, and so drown.