Retailers' Credit Crunch Keeps 'Em Up At Night

by Sarah Mahoney, May 15, 2009, 1:31 PM

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With profits falling at stores like JC Penney, Macy's and Kohl's, and Neiman Marcus reportedly the latest to be scrambling for credit, it's no secret that the recession is beating down the retail business.

What is intriguing, according to a new study from professional services firm BDO Seidman, is just how widespread is the concern over creditworthiness. Based on the 100 largest public retailers, the report finds that while executives see general economic conditions as the biggest risks (96%), anxiety about credit availability and company indebtedness has vaulted to No. 2 (93%) as the leading risk factors.

As more and more chains have seen their credit rating slashed, and many downgraded to junk status, the fears are acute, says Doug Hart, a partner in the retail and consumer product practice at BDO Seidman. "Usually, these trends are like ocean liners, and they don't turn on a dime. But we were surprised by such an enormous shift -- for a concern to shoot from No. 11 to No. 2 -- that's a big shift." In fact, the credit turmoil is so intense that it has shoved worries about stalled consumer spending way back in the line, with just 74% of chains citing consumer confidence and spending as the leading risk. (Still, that's a big jump from last year's survey, when only 58% said it was the biggest risk in their business.)

And issues like competition and consolidation -- admittedly high-class problems in an industry where the name of the game has switched from growth to survival -- also dropped farther down on the list of concerns. "About 80% of the retailers admit that the market is over-stored and oversaturated," he says.

Some 4-9% of retailers showed increasing concern over consumer credit and/or debt levels, up from 26% in 2008.

While retail bankruptcies such as Circuit City have dominated headlines, and Hart expects that to continue, "the pace is going to slow down," he predicts. "Stores have really pared back inventory to a more manageable level, and the economy has made it possible for some stores to go back to landlords and renegotiate terms of leases."

Meanwhile, the New York Post reports that Neiman Marcus is the latest retailer in trouble, scrambling to renegotiate a $600 million credit line that matures in the fall. Neiman, which also owns Bergdorf Goodman, has been especially bruised by the downturn in the luxury market, and said its sales fell 24% in April.

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