Recession Roundtable Anticipates More Retail Rumbles

Staff -- Home Textiles Today, 6/8/2009 12:00:00 AM

New York —

A group of liquidation expects warned of more bankruptcies to come — and soon — during a recent roundtable sponsored here by Berns Communications Group.

Retail liquidation is expected to accelerate during the end of the second quarter, some expects predicted.

The roundtable, which focused on the state of distressed retail, included Mary Ann Domuracki of Financo, Inc.; Jim Schaye of Hudson Capital Partners; Antony Karabus of Karabus Management; and Larry Gottlieb of Cooley Godward Kronish. The discussion marked the first in a series of panels Berns is conducting with industry leaders to explore significant industry developments.

Bullet points from the discussion included:

• No room for No. 2 players in select retail categories. Mary Ann Domuracki, managing director of Financo, Inc., pointed to the demise of Circuit City and Linens 'n Things as characteristic of the trend.

• Apparel, office supplies, books and jewelry are all at-risk. Jim Schaye, president and ceo of Hudson Capital Partners, expressed particular concern about these categories going forward and expects liquidation activity to continue through the foreseeable future.

• Retailers will be re-organizing before filing for Chapter 11. According to Larry Gottlieb, partner and chair of the bankruptcy and restructuring practice at Cooley Godward Kronish, changes in the bankruptcy code have left too little time for retailers to restructure under Chapter 11. As almost all retail bankruptcies result in an immediate sale or liquidation, retailers will need to find innovative ways to reorganize their businesses and avoid filing for bankruptcy.

Domuracki asserted that in today's unstable financial environment, a healthy balance sheet may save retailers struggling with their merchandise. To that end, she believes women's specialty store sales will remain weak this fall.

According to Antony Karabus, ceo of Karabus Management, a subsidiary of PricewaterhouseCoopers Canada, retailers need to take a more disciplined approach to cost structure, aligning costs with lower consumer demand. He recommended establishing targets for reduction of at least 10% to 15% of total cost infrastructure expenditure.