Retail News - Labelscar: The Retail History Blog

General Growth Properties Largest Real Estate Bankruptcy in U.S. History

Well, it’s happened. U.S. mall owner General Growth Properties filed for Chapter 11 bankruptcy today.

General Growth Properties Inc, the second-largest U.S. mall owner, declared bankruptcy on Thursday in the biggest real estate failure in U.S. history.

Ending months of speculation, General Growth, along with 158 of its 200-plus U.S. malls, filed Chapter 11 while it tries to refinance its debts.

But the ongoing global financial crisis made it impossible for General Growth to restructure outside of bankruptcy and could signal further troubles for other financial institutions who are General Growth creditors.

The collapse underscores the pressure on U.S. commercial real estate with few sources of available funding.

What does this really mean, however? GGP filing for Chapter 11 isn’t going to look quite the same as Mervyn’s or Circuit City, even if General Growth ultimately isn’t able to restructure. David Bodamer over at Retail Traffic’s Traffic Court blog has more:

Bankruptcy experts, however, say that many of the worries may be unfounded. The sector may not have been tested by a big bankruptcy yet, but enough is known about how the companies are structured and how a bankruptcy proceeds that experts think the industry should emerge fine, even from a series of bankruptcies. Further, there is reason to believe that because REITs control a tangible base of assets through large portfolios of real estate, these firms may be more likely to survive bankruptcies than other companies that’s value is harder to pin down or could be subject to liquidation.

I’m not an expert on REIT bankruptcies (and if I was, I’d probably enjoy a higher pay grade) but I suspect GGP will survive. They may sell off some properties–including very strong, well-tenanted, somewhat economy-proof properties like the Providence Place Mall in Rhode Island or Faneuil Hall in Boston–simply because that will help raise significant amounts of capital. If any of their properties actually shutter, it’s likely to be ones already heavily threatened; one obvious example is the tiny Redlands Mall in Redlands, California, anchored only by bankrupt (and soon-to-close) Gottschalks. Remember, however, that GGP’s role is primarily as a landlord; they own properties, which they have mortgages on and then maintain and collect rent from. This crisis is primarily the result of the credit crunch; if no one is lending, it’s rather hard to get half a billion dollars to refinance the loan on a heavily-leveraged, massive shopping mall, even if that shopping mall is turning a profit. Their crisis seems to be tied more to an absence of operational capital from this situation than from the more widely-reported death of enclosed shopping malls. Remember, GGP malls are often amongst the most dominant in their trade areas. If we were seeing one of the huge mall operators declare bankruptcy solely due to vacancies, it’d probably have more likely been Simon–who has more marginal centers–or one of the turnaround-focused companies like Feldman who got stuck with a bad mall or two in a game of “hot potato.”

Dillard’s Suing Simon and GGP Over Deteriorating Condition of Austin Mall

Highland Mall Dillards, from Austin Business Journal

Here’s another interesting curiosity: Dillard’s, who maintains two stores at Austin’s beleaguered Highland Mall, is suing the Highland Mall Limited Partnership–made up jointly of General Growth Properties and Simon Property Group–for letting the mall deteriorate sharply. Dillard’s plans to close both of their stores in the center, which already lost JCPenney in 2006.

Gang activity, crime and a store that sells toilet paper are some of the reasons why anchor retailer Dillard’s wants out of Highland Mall before its lease is up…

Dillard’s alleges that the owner — Highland Mall Limited Partnership, made up of Simon Property Group Inc. [NYSE: SPG] and General Growth Properties Inc. [NYSE: GGP], two of the country’s largest mall operators — let it deteriorate to such a degree that it has forced Dillard’s to close.

It would be interesting to see how this pans out; if they’re successful I suspect we may see more retailers take such a tack to exit rapidly deteriorating shopping malls.

(image: Austin Business Journal)

Old News: Goodbye to Gottschalks and Fortunoff

Isn’t it obvious it would turn out this way?

Gottschalks

On March 30, Gottschalks announced they were going to liquidate, extinguishing any hope the 105-year-old chain would continue to operate. We noted a few months ago that Gottschalks existed in a weird place–kind of a dowdy combo of Kohls and Macy’s, with mostly mall-based locations–and that their senior citizen-skewing product mix wasn’t likely to keep them afloat through their troubles. This all proved to be true, but another factor in their demise was some truly terrible bad luck: the store fleet for Fresno-based Gottschalks is concentrated most heavily in the areas most adversely impacted by the housing crisis of 2008. Central Valley cities like Modesto and Stockton have been struggling with year-over-year real estate declines upward of 50%, which is truly catastrophic for the families living there–try and imagine having your personal net worth decline by two or three hundred thousand dollars in just one year! I’m really not sure what I’d do in such a situation, but I can tell you one thing I probably wouldn’t do when faced with such a situation: go shopping at Gottschalks.

The double whammy for malls, of course, is that Gottschalks and Mervyn’s co-anchored many malls together. Some malls, such as Bakersfield’s East Hills Mall, didn’t even have another anchor aside from these two. This will spell doom for a great many of the centers lining California’s Central Valley, but also many other places throughout the west where both chains operated.

Fortunoff

The other story we forgot to follow up on–whoopsie!–is the equally-unsurprising failure of New York-based Fortunoff department stores. Like Gottschalks, we liked these guys just because they felt like a relic from another era, but “relic” and profitability don’t tend to go in the same sentence. The 2008 acquisition of the chain by NRDC Equity Partners–who helmed a successful turnaround of Lord & Taylor even in a bad economic environment (though this is now faltering, I’ve heard) and who also recently acquired Canada’s Hudson Bay Company–seemed to give these guys some hope. But ultimately their product mix and store fleet was perhaps too strange to survive in the current retail landscape. Their mostly mall-based, large stores leaned heavily towards housewares and jewelry but without any specific niche. They had neither the hip cachet of newer, smaller competitors like Crate & Barrell or West Elm nor the well-established legacy of larger old line stores like Macy’s or bargain prices of Best Buy and Wal-Mart, plus three of the four of their remaining stores were located in second-tier malls; one of them is even completely dead. What is sad about the loss of Fortunoff is that it’s a quirky regional chain that still remains well-loved; their imminent disappearance reminds me of New England losses from the ’90s and early 2000s like Apex, Ann & Hope, or Lechmere.

Gottschalks Sinking Fast; Filene’s Basement in Trouble

Gottschalks

Yikes. They only just announced a Chapter 11 filing last week, but Gottschalks is on the fast track to oblivion. Inside Bay Area notes that Gottschalks needs a buyer now “or else:”

Gottschalks Inc. intends to find a buyer by mid-March or it might proceed with a complete liquidation of its assets, according to court papers filed by the bankrupt department store operator.

The retailer, whose operations include department stores in Antioch, Stockton, Tracy, Santa Rosa and Capitola, said it hopes to complete an auction by March 17 that would lead to a sale of the company. Fresno-based Gottschalks operates primarily in malls located in suburban and rural markets in California, Washington, Oregon, Nevada, Idaho and Alaska.

Absent a buyer, Gottschalks would move toward a liquidation during the spring, company filings with the U.S. Bankruptcy Court in Delaware shows.

Like I said the other day, poor Gottschalks has seemed like a weaker player for some time. Their stores are like relics from another era, straddling a funny line between Kohl’s and Macy’s and with locations in rural malls and second-tier markets. Their loss would be a very major one for many malls in smaller western markets.

At the same time, Filene’s Basement is closing 11 stores with leases they were apparently unable to negotiate. This may be a bad sign for the overall health of the once-storied chain. Filene’s Basement has been close to the brink before in the late ’90s after a zealous overexpansion and a dilution of their brand equity, after opening scores of suburban stores that were too similar to TJMaxx, Marshalls, and Ross to differentiate. The smaller chain retrenched of late, however, and began to trend upscale by offering high-end designer goods at significantly marked down prices; a nod to its beginnings as the clearance basement under the original flagship Filene’s store in Boston. That store, which is notable for hosting its annual “running of the brides” bridal clearance event, has been closed for several years while the site is being redeveloped. Many in Boston wonder if it will ever re-open, and this latest news seems to cast even more doubt on the prospect.

Coming soon: a post about a mall that actually has a Gottschalks in it! Neat!

Unsurprising Announcements: Say Goodbye to Circuit City, Gottschalks Teeters

Curbed-style Circuit City graphic

As expected, 2009 is bringing a massive wave of retail bankruptcies. Today brings news of the biggest yet: Circuit City will be closing all of their stores and winding down their business between now and March 31. This will leave Best Buy as the only national electronics retailer, with only a few regional (or much smaller, like Fry’s) competitors. Over 30,000 people will lose their jobs.

Given the relative ease of finding electronics online–a fairly commoditized good–CC’s weakness compared to Best Buy, and the vastly superior options offered by smaller, speciality chains (Fry’s Electronics, Micro Center), it’s surprising it took Circuit City so long to reach this point. For many years, Circuit City has offered a fairly poor store experience, with showrooms that feel trapped in the ’80s and offer limited selections. There was a time, not much more than ten years ago, when Circuit City’s commission-based sales staff was fairly knowledgeable, and Circuit City offered decent selections in certain verticals (their music selection was, until the late 1990s, amongst the best amongst general merchandise retailers). Apart from a few ingenious moves, such as an online feature that allowed you to reserve a product in a local Circuit City store and pick it up within 24 minutes–a great treat when you’re looking for a hard-to-find item–Circuit City hasn’t for many years looked like the behemoth it was when expanding across the country in the ’80s and ’90s, crushing smaller regional competitors like Lechmere in its wake.

Trouble started to appear in early 2007, when the economy was still quite strong. Circuit City made the famously insensitive move of targeting well-paid, highly trained, senior sales staff for layoffs, and then ineptly watched as the move was made public. A lesson here, guys: when your competition is the internet–a place without any sales staff at all–then don’t toss out your differentiating factor. Not only was it a devastatingly embarassing public relations move, but it was also the wrong strategy.

Also, Gottschalks, one of the last of the old-line department stores not called Macy’s, Sears, Penney’s, or Dillard’s, has filed for Chapter 11 bankruptcy protection. The famously dowdy Fresno-based retailer is one that we’ve had our eye on for awhile because their stores seem like relics from another era. Their merchandise mix is not especially contemporary when shoppers have been turning away from stores like these for years. So far, no announcements of store closings but watch them to come down the line. The loss of Gottschalks would deliver a painful blow to many small-town and second-tier western malls, especially in California’s central valley. In some cases, Gottschalks is the primary (or lone) remaining anchor for some of these malls (including at least one or two that I’ll be posting soon!)

Other bankruptcies this week include Against All Odds and Shane Co. jewelers.

Macy’s Closing 11 Stores; Goody’s Says Goodbye Forever

Macy’s, like many other stores in the country, didn’t make it through the holiday season with a surplus of cash; in fact, Macy’s has emerged from the holiday season – a time when many stores report up to 50 percent of annual sales – badly beaten and in need to purge some of its stores. The following 11 locations will begin closing sales immediately:

Bellevue Center, Nashville, TN. Former Hecht’s.
Ernst & Young Plaza (7+Fig), Downtown Los Angeles, CA. Former Robinson May.
The Citadel, Colorado Springs, CO. Former Foley’s.
Westminster Mall, Westminster, CO (Denver area). Former Foley’s.
Palm Beach Mall, Palm Beach, FL. Former Burdine’s.
Mauna Lani Bay Hotel, Big Island of Hawaii*
Lafayette Square, Indianapolis, IN. Former L.S. Ayres.
Brookdale Center, Brooklyn Center, MN (Minneapolis area) Former Dayton’s and Marshall Field’s.
Crestwood Court (Formerly Crestwood Plaza), St. Louis, MO. Former Famous Barr.
Natrona Heights Plaza, Natrona Heights, PA (Pittsburgh area). Former Lazarus.
Century III Mall Furniture and Clearance Center, West Mifflin, PA (Pittsburgh area). Former Kaufmann’s.

* What on earth?! Macy’s was in a hotel? It must have been small, as it only had 3 employees. Was this a Liberty House that Macy’s “inherited” in the 2001 acquisition of that store, I wonder?

This news most certainly isn’t welcome for many of the centers listed above, as they are teetering on becoming dead malls or are already there. Losing Macy’s will almost certainly put some of them on life support or will cause them to close outright.

Also, note that every store, with the exception of the hotel store, was a May company regional nameplate which got eaten by Macy’s in 2005-2006. Count on Macy’s and many other chains to continue to “trim the fat” and eliminate underperforming locations of stores this year in order to stay afloat. Hopefully, Macy’s didn’t bite off more than it could chew with the enormous May acquisition coming so soon before a major economic recession.

In other retail news, Goody’s Family Clothing, a Knoxville, Tenn. based chain of over 380 anchor and mini-anchor sized stores in the Southern and lower Midwest states is closing all of its stores for good. This news sadly comes as the first liquidation of 2009, but don’t look for it to be the last. Liquidation sales should begin by January 9, 2009, and wind down by April 1st. These closures are definitely more powerful and far-reaching than the Macy’s closures, as many malls and power centers throughout the south are either anchored by or contain a Goody’s store. Not good-y.

While the Economy Was Crumbling…

I didn’t live through the Great Depression, but none of the seniors who did told me we’d be losing all of our chain stores! Sheesh…

We already know about Mervyn’s and Linens N Things, but I dropped the ball on reporting on a few others, such as:

Value City:

The ailing Value City Department Stores chain has filed for bankruptcy protection as it prepares to shutter its stores.

The company filed the Chapter 11 application Sunday in U.S. Bankruptcy Court’s Southern District of New York, asking the court to approve an agreement with liquidation firm Tiger Capital Group LLC to conduct closing sales at “substantially all” of its stores.

National Wholesale Liquidators:

National Wholesale Liquidators Inc., a family-owned discount retailer, sought bankruptcy protection from creditors without giving a reason…

The company, founded in 1984, carries more than 120,000 items including brand-name closeouts. Its more than 50 stores are located in suburban shopping plazas in 10 states including New York, New Jersey and Pennsylvania. The retailer forgoes “fancy” store fixtures to keep prices low, according to its Web site.

Circuit City (We called this one):

Circuit City Stores, the nation’s second-largest consumer electronics retailer, said yesterday that tightened credit and rapidly declining consumer spending have forced it to file for bankruptcy protection, underscoring the perils facing retailers as they head into the crucial holiday season during the worst economic crisis in a generation.

The season generally accounts for about 20 percent of all retail sales, providing the cash that stores use to pay for merchandise ordered on credit earlier in the year. But as Circuit City’s troubles mounted, its suppliers feared that it would not be able to pay its bills.

Perhaps most dramatically, General Growth Properties–one of the nation’s largest mall operators–is facing default:

General Growth Properties Inc. shares plummeted Tuesday after the mall owner warned it faces solvency trouble and may be forced to file for bankruptcy if it can’t refinance or extend nearly $1 billion in debt due next month.

The real estate investment trust, which is the nation’s second-largest mall owner whose big-name holdings include Chicago’s Water Tower Place and Fashion Show in Las Vegas, also disclosed in a regulatory filing late Monday that it may default on certain debt obligations.

And although it’s not yet bankrupt, there was this sad dispatch from Boscov’s, longtime a favorite here at Labelscar:

Al Boscov admits his bid to regain control of the department store chain named after his family is the final hope for the bankrupt retailer’s survival.

“We have to sort of pull off a little bit of a miracle,” Mr. Boscov said Wednesday. “If I can’t raise all the money, the only thing you would have is liquidation.”

Given that this retail bloodbath is coming just before the Christmas season, I am really terrified to see who will follow these companies into the abyss after the holidays are over. That’s typically when most struggling companies throw in the towel, since they hope that the Christmas sales will put them back on track. Remember when companies like Bradlees, Montgomery Ward, Apex, and Ann & Hope all shut at the same time in early 2001? We may see even worse this time around.

I’m running out of obvious guesses for impacted large-format retailers, but I think we may see at least one office chain run into trouble (Office Max seems the weakest), and I think more of the smaller remaining regional chains (Gottschalks, you frumpy old mess, I’m lookin’ at you!) will run into serious trouble. Other chains that long ago lost a strong value proposition (Dillard’s) may find themselves in a fair amount of trouble, and verticals with several comparable strong players (a la L’N’T and Bed, Bath, & Beyond) may wind up shedding some chains (PetSmart or Petco? Borders or Barnes & Noble?). And of course, there’s always Kmart/Sears, but if there’s one that would spell catastrophe for our nation’s malls, it’s that one.

Circuit City to Slash 155 Stores, Value City is Done

Curbed-style Circuit City graphic

We called it: Circuit City is closing 155 stores, not even waiting to see if holiday sales have a chance of propping up the 700-store chain. This is a very bad sign; I’d look to see if Circuit City is one of the titans to fall in January. Consumerist has the complete list of stores to close. The cuts are heavy in Georgia, Arizona, California, Illinois, and Ohio, and they’re scooting out of some markets entirely. Surprisingly, the Northeast is largely spared with only one store in New England to shut and relatively few in the New York City metropolitan area.

Bloomberg:

The company has posted six straight quarters of falling sales. Circuit City hired FTI Consulting Inc. and replaced its chief executive officer in September after losing customers to Best Buy Co. and Wal-Mart Stores Inc. Circuit City is closing stores in 55 metro areas and will exit 12 of those markets altogether, including Atlanta, Phoenix and Kansas City, Kansas.

Circuit City is closing stores that contributed $1.4 billion in revenue last year, an average of about $9 million per store. Average revenue per U.S. store last year was about $16 million. The retailer, founded in 1949, has struggled with older stores in less desirable locations.

“Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply,” CEO James Marcum said in the statement. “The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors.”

Circuit City tried to sell itself in May after Blockbuster Inc. made a preliminary offer that was later withdrawn. It fired higher-paid workers and opened smaller stores to cut costs. Until the shift to smaller stores, Circuit City’s strategy had been to sell in locations as large as 44,000 square feet.

In the meantime, we missed the story last week but the long-beleaguered Value City department store chain will be closing all of their remaining locations. Frankly, this one seems overdue; Value City’s dowdy, confusing fleet of stores always felt like a relic from the ’70s, and they long ago lost any specific value proposition. Frankly VC has been a weaker player than even Kmart (or even the more-comparable Mervyn’s) for a long time. Economic downturns like this one tend to clear out the deadwood first, and it’s hard to define Value City as much else.

Interestingly, Value City’s closing will have a heavy impact on some marginal shopping malls. The Shore Mall near Atlantic City is one that comes to mind, as does the Fairlane Village Mall in Pottsville, Pennsylvania: the center is anchored by only Value City and Boscov’s, two troubled chains.

Oh, Merv!

Stick a fork in Mervyn’s. They’re done.

In addition to Mervyn’s, Linens N Things is also going out of business. Who else do you think we’ll see in the next few months? My money is on Circuit City…
Via Retail Traffic

Another Sad Day for Retail: Boscov’s Flails for Life; Dawahare’s Shutting For Good, Trouble for Goody’s and Bob’s

Whoa. just when we thought it couldn’t get much worse than Mervyn’s, one regional chain is throwing in the towel and three others are struggling badly. The big news, surrounding northeastern department store Boscov’s, is fresh from this morning:

About half the major suppliers to Boscov’s, a family-held Reading, Pa.-based department store with stores across the mid-Atlantic, have halted merchandise shipments for lack of payments, The New York Post reported Friday, citing unnamed sources.

PlainVanillaShell has more, reporting that the 97-year-old, family-owned chain is nearing collapse. Boscov’s has stores stretching from Virginia to New York, with the bulk of their locations in Pennsylvania and New Jersey.
Dawahare's Logo

Meanwhile, Dawahare’s, a small, storied retailer with stores in Kentucky and West Virginia, announced this week that they will shut all of their 31 stores, many of them located in small Appalachian cities and towns hit hard by a poor economy.

Goody’s, a Tennessee-based retailer of family clothing with locations primarily in the southeast, has also filed for Chapter 11 bankruptcy and is closing 69 of their 355 stores.

bob's stores logo

And last but not least, long-troubled Bob’s Stores, a Connecticut-based chain of mid-priced casual clothing stores owned by TJX, has been put on the market. TJX acquired them in 2003 when the original, independent Bob’s Stores chain went bankrupt, but has been unable to turn them arond.