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Holiday 2008: The kiss of death for retailers

Posted Dec 29 2008, 03:51 PM by Anthony Mirhaydari
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The 2008 holiday shopping season looks like one of the worst in history. MasterCard reports that total retail sales fell 5.5% in November and 8% in December compared to last year. The worst affected were retailers of electronics, appliances and luxury goods.

Not even an epic fall in gasoline prices and the resulting boost to inflation-adjusted income could rekindle the acquisitive sprit as American consumers worked to strengthen their financial position.

While we won't know the true extent of the damage until same-store sales are reported next week, big changes are coming as the industry resizes to reflect new realities. Consultants at AlixPartners estimate that nearly 26% of the 182 large retailers it tracks are at significant risk of filing for bankruptcy over the next two years, up from just 4% two years ago.

For investors, all is not lost in this sector. Focus on companies best positioned to mop up the lost customers of bankrupt competitors and thrive in an environment of cheaper leases and fewer rivals. Also, capital conservation will be a concern, so look for retailers with low leverage and large cash reserves. You will also want to avoid the stocks of mall owners and any real estate investment trusts with significant U.S. mall exposure.

At issue is the repayment of debt, which fueled rapid store growth but is now becoming an inescapable burden for many as free cashflow dries up and lenders become more onerous. Changes to the bankruptcy code in 2005, along with a tightened market for bankruptcy financing, means many retailers will be denied a chance to fight for survival through restructuring and will instead be forced into liquidation a la Mervyn's and Linens 'N Things.

Using MSN Money's Stock Screener tool, I generated the following list of stocks worth considering if you have a contrarian bent:

Disclosure: The author does not own or control shares in any of the companies mentioned.

Anthony Mirhaydari is a contributor to the Strategic Advantage investment newsletter. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.

Related reading:

A year to remember: 6,100 stores closed

JC Penney boss gets stock bonus; workers stay up late

Amazon's strong sales bucks trend

Retailers want bailout, too

Comments

 

doesn't anyone see that if they government bailed out the consumer, the consumer could then stimulate the economy with the potential to break records across the board.  if government gave each taxpaying, wage earning household ( and i mean working, earning a paycheck household) a bailout that household would begin spending in record amounts, the rate of return would be 28% back to the government in taxes, the mortgage crisis, the construction crisis, the unemployement crisis, the automobile industry, the retail industry, the electronics industry, the appliance industy, the luxury goods industry would rebound within weeks of the bailout.  This is based on the idea that those who are in debt, have a mortgage, work, drive cars, have children, college tution, day care bills, utilities, and proerty taxes would pay those bills and continue in that lifestyle.  Those who currently invest in the stock market would continue, those who currently buy certificates of deposit, bonds, and own savings accounts would continue, and those who travel would continue to travel.  Could this be economic nirvana for the United States that we are all searching for?

4,000 views and no comments!  I guess this is one reporter who need more details than this "obvoius" surface story.  dig dig dig... report report report

AdvocateoftheKISSrule,

The problem is that for the gov't to bail out consumers it needs to print more money and go into more debt.  Unfortunately, this recession was caused by greed and easy credit that is now coming due.  I think the average American needs to pay down credit card debt and boost their savings to provide the banks with immediate liquidity.

Advocate...how do you figure "the rate of return would be 28% back to the government in taxes"? And how many would really invest in stocks? And how many would go out and buy (more) crap they don't need when they don't know if they'll have a job next year or not?

I'll take some "free" money, sure. But I might just hang onto it (like a couple of million other folks might).

regession  not ression   when the bubble money   and   fake multiples  shake out  then  we will see   WHAT  can surrive

regession  not ression   when the bubble money   and   fake multiples  shake out  then  we will see   WHAT  can surrive

Advocate... can't you see that the Government is practically bankrupt itself?  The rich don't pay their share of taxes and the poor, the biggest section of the tax base which constitutes the Government's "income", are a lot poorer than a year ago.  You want to know where all the money went?  Try looking in China.  This is what happens when all the good paying jobs and now the so-so paying jobs go overseas.  I've seen this coming for years but everyone told me I'm nuts. It's not going to get better.  Welcome to the opening chapter of the New Great Depression.

If Dress Barn heads your list of stocks to buy, you most not have entered one of their stores.  Over priced.  Low quality.  Old lady styles.  I'll only go in there for dull clothes to wear to a conservative dull job.  Someone once said to me anyplace with "Barn" in the name is not somewhere I want to shop for clothes.  So uncool.

If you don't think that people who make more than 500,000 are not paying their fair share of taxes than you are ignorant. People who make that kind of money are in the 46% tax bracket. Almost half!! Do your research before you spout off.

Smartest Man I ever listened to Was Jack Welch of GE. I heard him 2 years ago say that all recessions are caused by overly high energy prices. He was right. When it cost you extra money to go shopping, people stop.

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