Retail sales have been dismal, but the real damage to profitability and viability was unprecedented deep discounting, according to Grant Thornton Corporate Advisory and Restructuring Services. Department stores performed the worst, with the steepest decline in same-store sales, while luxury-apparel stores saw declining sales as consumers traded down and reduced discretionary spending.
"Same-store sales only tell part of the story," said Marti Kopacz, national managing principal at Grant Thornton in a press release statement. "The real eye-opener will be when gross margins are announced in a couple of weeks. During the holiday sales frenzy, retailers were selling items at 60 to 70 percent off to generate cash and move inventory. Items were sold below cost, which will hurt the bottom line."
As a result, Grant Thornton representatives said they believe this year will bring even greater distress for the retail industry, with many national retailers expected to close stores by double-digit percentages.
"The current retail model will need to be evaluated from both a financial and operational perspective; retailers will need to remove underperforming stores and shrink to a more profitable core," said Jim Peko, principal at Grant Thornton. "Cost reduction, store rationalization and inventory management are the keys to operational restructuring. It is critical that merchandising plans be realigned to match expected consumer demand or retailers will not survive the downturn."
"There will be an uptick in retailers filing for bankruptcy in the first quarter," said Kopacz in the press release.
Want an even more telling statistic regarding the health of the retail economy? Grant Thornton's Corporate Advisory and Restructuring Services launched in mid 2006 and since then the company has grown to include more than 100 professionals in 10 offices, serving nearly 40 clients. For more, go to www.GrantThornton.com.