The 10 Retailers That'll Have a Not-So-Jolly Holiday

SearsRetailers have made a modest recovery from last year, but the industry is still far below where it was before the recession scared consumers silly. And merchants that don't grab their share of the rebound are going to be in serious trouble. The National Retail Federation recently raised its estimate for holiday season revenue growth to 3.3% from 2.3%. November retail sales, as measured by the Commerce Department, rose 0.8%, which was higher than most economists expected.

E-commerce is also enjoying what's shaping up as a strong holiday season. Online data research firm Comscore shows that e-commerce sales are up between 12% and 14% so far in the last two months of the year. However, much of that is going to the largest companies doing business online, such as Amazon (AMZN), Walmart (WMT), Target (TGT) and the online operations of most of the nation's largest bricks-and-mortar retailers.

Holiday sales are historically make-or-break for many retailers, and every year, several break -- and even go out of business. Others make large cuts in their store numbers and employees. TJX (TJX), for example, closed its A.J. Wright clothing stores last week and fired 4,400 people. The A&P (GAP) grocery chain entered bankruptcy this week and is closing 100 stores. Loehmann's plans to come out of Chapter 11 in two months, but it has struggled before to keep stores open and employees in their jobs.

And this year, all retailers face a new problem: soaring prices for commodities like cotton and gold, which are quickly compressing profit margins.

Who's Likely to Close Up Shops?

Which retailers won't be having a very happy holiday season? To gain some clues, 24/7 Wall St. has examined several dozen national retailers, reviewing their same-store sales (sales for stores open at least a year), competitors and overall financial conditions. We weighted recent same-store sales more than those earlier in 2010.

We also considered the fact that almost all large retailers have some stores that aren't profitable. That may be due to location, geographic competition, poor management or a bad mix of inventory. That means retailers facing margin pressure, same-store sales trouble and even losses and balance-sheet issues are in a position to chop stores that don't contribute to positive margins.

After all that, we've came up with 10 retailers that will suffer as a result of terrible holiday sales. Some won't be in business at all in 2011. Others will be much smaller and less competitive versions of what they were just a year ago. In each case, our calculations for store or company closings is for the period from Jan. 1 to June 30, 2011.

Jones New YorkJones Group
This retailer operates several brands including Jones New York. It has 834 locations and is already shuttering locations. Forty-six were closed in the third quarter, and 40 more will go soon. Jones (JNY) has tiny profit margins, making only $29 million in net income on slightly over $1 billion in sales during the third quarter. It has $34 million in cash on its balance sheet and $525 million in long-term debt and obligations under capital leases. The company said it would miss its financial targets for the balance of the year -- particularly bad because it includes the critical holiday season. Jones's forecasts frightened Wall Street so badly that its stock fell over 20% just after it announced third-quarter results. Look for Jones to close another 100 stores this year due to competition and eroding margins.

Charming Shoppes
This family of apparel retailers is a candidate for ongoing and major restructuring, or to be bought by a larger company. It has 2,095 stores in 48 states, and it lost $18 million last quarter. In the year up to the end of the third quarter, Charming Shoppes (CHRS) closed 129 net stores. Its fiscal 2010 plan calls for 100 to 120 more stores to be shuttered. Charming Shoppes has had only two profitable quarters in the last three years. Its CEO left in October. High overhead and poor margins are likely to continue. Look for the company to close 300 stores or more altogether.

Lucky BrandLucky Brand
This retailer is part of Liz Claiborne (LIZ), which has two other large store operations, Juicy Couture and Kate Spade. Lucky Brand stands out among them as the weakest unit. Third-quarter net sales for Lucky Brand were $98 million, a 5.5% decrease compared to 2009. The operation has 189 specialty stores and 37 outlet stores. Liz Claiborne is under pressure to improve its financial performance. It lost $62.7 million, or 67 cents per share, last quarter. That compares with a loss of $90.5 million, or 96 cents per share, in the same period a year ago. Lucky Brand is a drag on the parent's financial performance. Don't be surprised if it gets shuttered completey to improve Liz Claiborne's margins and profitability.

Big Lots storesBig Lots
Wall Street hates Big Lots (BIG). Is it any wonder? Same-store sales went nowhere in the third quarter. Big Lots is opening stores like mad -- 80 in the 2010 fiscal year -- and now has 1,389. Net income for the most recent quarter was only $17 million on just over $1 billion in sales. Showing how much trouble it's having in the competitive low-price market, it cut its forecasts for the balance of the year. JPMorgan downgraded the stock to underweight. Big Lots holiday sales will be poor enough that it will cut those 80 new stores and at least another 80.

AeropostaleAeropostale
Goldman Sachs recently cut its price target on this specialty retailer and rated the stock neutral -- an insult to any public company. Very few investors were shocked. Aeropostale (ARO) shares recently dropped over 10% in one day when it missed forecasts and its co-CEO left the company. The firm reported reasonable same-store sales in the last month, but they were flat in the third quarter. And revenue was up very modestly for the period, with net income dropping slightly to $59 million. Aeropostale has 1,002 stores and plans to open another 30 in fiscal 2011. That doesn't true up with the company's weak forecasts for the current period. Aeropostale doesn't appear to have the sales to support 1,000 stores, let alone more. To maintain current margins, it will have to cut 50. To sharply improve that, the figure will need to be closer to 75.

BlockbusterBlockbuster
It's almost cruel to add the world's largest video rental chain to the list, but a story with store-closing forecasts would be incomplete without it. Now in Chapter 11, Blockbuster (BLOAQ) has introduced tiered pricing to bring back customers. It hopes that extremely cheap rentals will allow it to compete with the 26,000 Redbox retail kiosks, which are far more inexpensive to operate. Redbox is adding over 1,000 of them a year. Blockbuster has opened some kiosks of its own, but it's late to the market. Netflix (NFLX) has begun to offer streaming movies over the Internet, which shows where the market is going. Blockbuster's attempts at this business have been abysmal. It seems inconceivable that it can keep all of its more than 7,000 stores open. For Blockbuster to have any chance for survival, it'll need to close 100 or more locations per month.

BordersBorders
Here's another company that stands out as a candidate for store closures. Borders (BGP) has been crippled by competition from Barnes & Noble (BKS) and many online booksellers, led by Amazon. After hedge fund manager Bill Ackman tried to buy Barnes & Noble and was rebuffed, he said he would finance a buyout by Borders instead. No one believed that the offer was real. Meantime, Borders turned in another atrocious quarter. Third-quarter sales were $470.9 million, a decrease of 17.6% from the same period a year ago. Same-store sales declined by 12.6%, and online sales decreased 8.6% over the prior year to $12.5 million. Overall, the company lost $74 million. Borders is low on money again and is in the market for more financing because it could violate the terms of current financing early next year. With about 1,000 stores, the firm is likely to go into Chapter 11 soon or be sold to another company in a related business like Barnes & Noble. Either way, Borders will end up closing half its stores.

Office DepotOffice Depot
The least successful of the three major office supply companies is in deep trouble. Not only does it compete with Staples (SPLS) and Office Max (OMX), but big-box retailers like Sam's Club and Costco have set up sections of their stores to cater to small businesses. Office Depot's (ODP) prospects are so poor it was recently kicked out of the S&P 500. In the last quarter, the company's sales were $2.9 billion, down 4%, and Office Depot earned only $54 million. The firm has 1,150 stores in the U.S. and Canada. Margins are close to nonexistent, and sales are eroding. Oh yes, its CEO recently left. The only way to increase margins per store is to close underperforming locations. Based on Office Depot's earnings, that would be about 150 stores, nearly 15% of its total.

Rite AidRite Aid
The pharmacy chain definitely needs to be on the list, although it's almost too obvious to be worth mentioning. In a little over a year, the stock has dropped from $2.17 to 90 cents. Rite Aid's (RAD) performance has continued to falter. Same-store sales were down 1.7% in November, after a similar drop in October. The drugstore segment is crowded, particularly because of market leaders CVS (CVS) and Walgreen (WAG). The company reported revenues of $6.2 billion, a net loss of $197 million, or 23 cents per diluted share in the quarter that ended Aug. 28. Rite Aid lowered its guidance for future earnings. The company has 4,700 stores, which is staggering given Rite Aid's performance. It will certainly need to close 10% of those-- 500 stores -- to take many of its unprofitable locations off the books.

SearsSears
The Kmart division of Sears Holdings (SHLD) is holding its own. But the Sears unit is falling apart. The parent company recently turned in very disappointing numbers. Total revenues decreased $512 million to $9.7 billion for the quarter ended Oct. 30, compared to total revenues of $10.2 billion for the same quarter a year ago. The domestic comparable store-sales decrease included declines of 0.7% at Kmart and 8.2% at Sears Domestic. Management commented that "While Kmart improved profitability, our third-quarter results were disappointing, in large part due to lower sales of apparel and appliances at Sears." The competition from Walmart and Target is cutting into Sears's revenue. It has about 2,300 full-line and specialty stores. With same-stores sales moving down at the current rate, Sears will need to close over 10% of its locations -- almost 250 stores.


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pye

I grew up with sears being #1 for everything.I took it in the A- - Hard on a top of the line HE Washer and dryer purchase that cost over $3000.00.They didn't try to help at all when the washer was burned up after only 3 years and needed 80% of the original cost to repair with only a 30 day warranty.The worst experience i ever had on customer service follow up! I wouldn't step foot in a Sears again! Let them Fade out... already gone in my Book (shame)

December 18 2010 at 6:10 AM Report abuse rate up rate down Reply
chapython

I notice a good number of people complaining about Sears. My experience has been the total opposite. We have been purchasing a variety of products there for about thirty years. We don't buy everything there and do comparison shop but Sears is always cosidered. Right now one of our refrigerators, stove, washer, and dryer all came from Sears. They are from one to 14 years old. Only have had problems with the washer and dryer. Dryer is 7 years old, washer is three years old. Dryer needed service last year, called one day technician arrived next day, didn't have the part on his truck he called his dispatcher and met another driver who had the part and came back to complete the repair. He had used the part he had on the stop prior to mine. He appologized for the delay, I was only charged a total of one hour for the repair time. The next day someone from customer service called, appologized for the delay in repair, we were sent a $25.00 gift card, to Sears naturally. I have a lawn tractor that is 11 years old, still runs fine and I mow a little over an acre each week.

December 18 2010 at 1:29 AM Report abuse rate up rate down Reply
Jan Bonner

I was a loyal Sears customer for many decades. But the quality of the merchandise has declined with each passing year; and Sears service is an abomination. You will be lucky to get a repair technician within one week; two weeks is more the norm. It is very hard to go two weeks without the use of your washer or dryer. I am now buying appliances at a small local retailer, mostly LG products and I can get a repair technician within two days. I agree with jerri2222, if only we could go back to "MADE IN THE USA!"

December 17 2010 at 9:44 PM Report abuse rate up rate down Reply
jerri2222

The Quality is Gone.... too much foreign crap...Bring back MADE IN USA

December 17 2010 at 9:22 PM Report abuse rate up rate down Reply
jerri2222

They have to Re-invent ways of shopping to attract people who don't usually go into stores to increase Volume ! ...bring computer shopping into the stores and malls... with rewards of Food...vouchers and coupons... kind of like casino's do...Keep the buyers there longer and they will spend more !! I could show them how if they called me....

December 17 2010 at 9:20 PM Report abuse +1 rate up rate down Reply
Hi Peg and Matt

People deserve to be treated as idiots by the retailers. You stand in line at four o'clock, A.M., to get a bargin, yuo are well trained. If you followed the instructions we received in 2008 to put your money in a shoe box and stay home, today it would be the retailers standing in line at your home, tring to make a sale.

December 17 2010 at 4:44 PM Report abuse rate up rate down Reply
tommac526

Used to shop at Sear's all the time! All my tools, appliances, lawn and garden, and even my tires. It was the tires that made my NEVER step foot in another Sear's store. They were 80,000 mile tires, had 25,000 miles on them with 5 alignments done by Sears and when I had a problem? Needed new tires and they would only give me 10% off. Cut up my Sear's card...sent it to my store's manager, never heard from them, so they deserve to go under...too many people like me out there that was shafted by Sear's!

December 17 2010 at 4:04 PM Report abuse +2 rate up rate down Reply
savemycountry911

Sears just isn't quality anymore.

December 17 2010 at 3:30 PM Report abuse rate up rate down Reply
assign11

Concur with Clay - I will still shop at the big box stores to some extent, but when I have a choice, I am also shopping at the smaller mom and pop type of shops. The ones that the owners have usually invested their life savings in to start the business....I hope all of you will join in that direction.

December 17 2010 at 3:27 PM Report abuse +2 rate up rate down Reply
Clay S. Conrad

I'm doing as much of my holiday shopping as possible at small businesses. Corporate America can kiss my posterior. They are all about quarterly results and CEO bonuses; customer loyalty, value, and service have gone to hell. When I buy jewelry, books, music, etc. at locally owned stores, I'm reminded of that old saying that THE CUSTOMER IS ALWAYS RIGHT. Corporate-owned retail is all about nameless, faceless, bureaucratic policies that do NOTHING for the consumer but take their money.

December 17 2010 at 3:09 PM Report abuse +4 rate up rate down Reply