Retail

Last updated: April 2008

Industry Codes:

NAICS – N/A (organized by merchandise type)

SIC – 599 Retail Stores, NEC

Overview

Retailers are struggling nationwide. Consumer confidence is low due largely to concerns about the economy exacerbated by a recent, increasing trend in unemployment. Consumer spending is down because households have less disposable income as a result of many factors including inflation, rising fuel and food prices; the loss in home equity due to falling home prices; and the lack of available credit. Meanwhile, retailers are burdened by record levels of debt contributing to higher operating costs. Stores are generally overstocked with inventory now requiring steeper discounts, which further squeeze margins. And, some retailers are locked into rent agreements that are not representative of market rents. These factors have each contributed to numerous large retailers declaring bankruptcy and many others are presently at risk. Even large retailers with strong balance sheets have announced major restructuring including store closures and layoffs. The retail segments most affected include:

Furniture – Levitz; Wicke's
Electronics – Tweeter Home Entertainment
Home goods – Linens ‘n Things; Home Interiors & Gifts, Inc.; Bombay Co.
Music & Video
Jewelry – Friedman's; Alpha Omega
Hobby or other discretionary purchase segments – The Sharper Image; Lillian Vernon

While The Fed has been reducing interest rates to help banks cope with the falling dollar, those interest cuts are not being trickled down to the consumer level.

Industry Condition – Fair to Poor

Key Industry Indicators

Retail Sales
Retail sales rose 0.2% in March over the previous month, a 2% increase over the past 12 months.
Credit Card Interest Rates
Dropping even faster than expected, credit card rates hit a new two-year low. For the week of May 2, the rate averaged 12.59%. This rate may not have bottomed-out yet as effects of the Federal Reserve's most recent interest rate cut on April 30 have not yet been felt.
Consumer Confidence Index
Consumer confidence continues to fall. The index stood at 76.4 in February, fell to 65.9 in March and then to 62.3 in April marking continued concern for the health of the economy.
Consumer Spending
The Commerce Department reported that consumer spending rose 0.4% in March. However, most of this increase was attributable to inflation and higher costs. Consumer spending accounts for two-thirds of total economic activity.
Existing Home Sales & Sales Price
In March, projected nationwide existing home sales were down 2.0% over the previous month and 19.3% lower than last year. The median sales price of existing homes increased in March to $200,700 which was 7.7% lower than last year.
New Home Sales
In March, new single-family home sales fell 8.5% over the previous month. Sales are 36.6% lower than one year ago.
Mortgage Rates
As of May 2, 2008, the average 30-year fixed mortgage rate was 6.06%.

Secondary Market

Overview

In recent years, there has been little attempt to restructure retailers in bankruptcy. Most go straight to liquidation, running large Going out of Business sales (GOB). In these cases, the inventory and store fixtures are liquidated together with other inventory purgeantaresd specifically to drive customer traffic and the overall profitability of the GOB.

Inventory Recovery

The recovery on inventory sold varies significantly by industry but, depending on gross margins, is typically a fairly high percentage of cost. Over the past several years, lenders have been willing to advance aggressively on the estimated net orderly liquidation values. Some recent sales suggest the same factors affecting the retail segment are affecting the results of GOBs, with the net proceeds realized falling short of original expectations, due largely to the need for greater discounts than anticipated.

Used Equipment Values – Low

Once the store merchandise has been sold, some of the store fixtures can be sold at prices representing 5% to 10% of original cost while other fixtures and leasehold improvements are disposed of at some cost to the seller.

Liquidation Monitor

Recent bankruptcies:
- Linens 'n Things filed on May 2, 2008
- Home Interiors & Gifts, Inc. filed on April 29, 2008
- RedEnvelope, Inc. filed on April 17, 2008
- Hoop Retail Stores, LLC filed on March 26, 2008
- Sharper Image Corporation filed on February 19, 2008
- Lillian Vernon Corp filed on February 19, 2008
- Fortunoff (Source Financing Corp.) filed on February 4, 2008
- Wickes Furniture Company, Inc filed on February 3, 2008
- Friedmans Inc. filed on January 28, 2008
- Levitz Furniture (PLVTZ, Inc.) files on November 18, 2007
- Movie Gallery, Inc filed on October 16, 2007
- The Bombay Company filed on September 20, 2007; closed final stores January 2008
- Ronco Corporation filed on June 14, 2007
- Tweeter Home Entertainment Group, Inc. filed on June 11, 2007
- HydroMaid International, Inc. filed on May 15, 2007
- Hancock Fabrics, Inc. filed on March 21, 2007
- 99 Cent Stuff Inc. filed on January 24, 2007

Industry Experience

Valuation Monitor

AccuVal routinely provides appraisal, consulting, and asset management services to the Retail industry and to wholesale distributors and manufacturers in the supply chain. View industries serviced >>