With sales plummeting and no financing available for reorganization, struggling retailers such as Bon-Ton and Dillard’s may be in big trouble

By Matthew Boyle

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This holiday season, any retailer not named Wal-Mart (WMT) has reason to worry. Paltry profits and debt-laden balance sheets mean some players are facing not just tough times, if it be not that potential extinction. With U.S. retail sales taking a registry 2.8% make last month and Deloitte Research’s consumer spending index turning negative for the first time as 1980, the meteorological character is unforgiving. Big names such viewed like Circuit City (CCTYQ), Linens ‘born Things, and Steve & Barry’s are among the 22 merchants that have already filed for bankruptcy this year. While retailers who filed for bankruptcy in recent years repeatedly could live to see another day, that may no longer be true. "You be able to’t get the financing to reorganize, to such a degree we are in a world of liquidation," says Howard Davidowitz, chairman of deal out in small portions consultancy Davidowitz & Associates.

The question now is: Who is most at risk? Retailers who are No. 2 or 3 in their categories—witness Circuit City’sitting position positive to Best Buy (BBY)—look particularly vulnerable. Not only are they likely to look steeper sales declines than stronger rivals, but many took onward excessive debt to fund diffusion in the middle of the cheap interest rates of modern years. The number of credit rating downgrades for retailers from Standard & Poor’s this year—53—has already surpassed the total for all of 2007, and S&P says it’s likely to issue more before yearend. "It’s been a extended time since we’ve seen some environment as challenging as this," says Deloitte Research Chief Economist Carl Steidtmann.

Analysts are keeping a close eye in continuance regional course of life supplies such as York (Pa.)-based Bon-Ton (BONT) and Little Rock-based Dillard’s (DDS). Both chains have long been dwarfed by the likes of Macy’s (M), Kohl’s (KSS), and J.C. Penney (JCP) and have seen their credit ratings slip in recent months in light of falling sales and rising leverage.

Bon-Ton, by same-store sales down 6.3% so far this year, looks the most challenged, analysts allege. The chain has weighty transgression afterward spending more than $1 billion to buy 142 stores from Saks (SKS) couple years ago, and its supplies are mainly in the struggling Rust Belt. While Bon-Ton declined to comment, it issued a statement on Nov. 6 to argue the chain has "excess borrowing dimensions" under its credit facility. As S&P algebraist Diane Shand notes: "The big annoyance is whether their vendors get nervous and don’t ship to them."

Dillard’s, meanwhile, has already closed 20 of its 330 stores this year amid a 6% sales decline, with more closings planned for 2009. It’s also facing investor pressure to overtake senior management, which is dominated by means of members of the founding Dillard family. Dillard’s says it currently has plenty of room to borrow under its $1.2 billion credit facility, but Fitch credit analyst Monica Aggarwal argues declining sales and avails margins will pressure the company "for one extended period of time." Analysts are skeptical with regard to the chain’s ability to turn itself around.

Women’sitting dress shop Talbots (TLB) is another retailer to be on the lookout. Same-store sales in its third quarter dropped 14%, and the company recently determined to jettison the J. Jill accidental clothing brand it bought two years ago for a half-billion dollars. The issue is whether they’ll supply anyone to buy it. "J. Jill was an asinine acquisition," says Antony Karabus, CEO of sell in small quantities consultancy Karabus Management. Talbots, which has begun sacrifice heavy discounts, declined to make notes. For all the struggles of the holiday season, industrial art observers agree that the positive shakeout could come in January. As Neil Stern of retail consultancy McMillan Doolittle says: "It’s going to get very ugly post-Christmas."

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