STEVE INSKEEP, host:
American consumers are not the only ones in trouble with debt right now. Turns out the stores where people have been buying all that stuff are in trouble too, and this morning we'll continue our conversations on debt with a look at retailers. It's getting harder for some stores to pay off their loans, or to get new ones.
That's according to Howard Davidowitz, a retail consultant in New York, who is forecasting a terrible year for stores.
Mr. HOWARD DAVIDOWITZ (Retail Consultant): We're going to close 7,000 stores in America - a record, because last year we closed about 4,500. And we've got maybe 15 retailers, beyond those who've already announced bankruptcy, on the edge or close to the edge. So we've got a very difficult situation in the retail business.
Debt is up 30 percent, and just like consumer debt is up, corporate debt is up. Everybody's debt is up. It's a real danger.
INSKEEP: When you talk about 7,000 stores closing this year, those range, I suppose, from mom and pop individual stores to entire chains going under?
Mr. DAVIDOWITZ: Yes, it does. Like Bombay is closing all of their stores. Friedman's just announced they're going to close all of their stores, 350 stores; Ann Taylor is closing 130 stores; Wilson's Leather, closing over 100; Charming Shops, closing over 100; Levitz closing all of their stores; Kirkland's closing over 100 stores; CompUSA is closing all of their stores. There's a tremendous number of stores closing across America.
INSKEEP: Is this just that Americans are spending a little less?
Mr. DAVIDOWITZ: Well, it's a combination. First of all, Americans are spending less. They've got the highest debt they've ever had. They've got tremendous inflation. Americans used to spend ten cents on food and energy. They're now spending about 17 cents on food and energy.
INSKEEP: Ten cents out of the dollar that consumers had, and now it's 17 cents out of the dollar on food and energy?
Mr. DAVIDOWITZ: Yes, sir.
INSKEEP: But it sounds like you don't think that consumers spending less is the only problem that stores have right now.
Mr. DAVIDOWITZ: No. Stores have a host of problems. One, we're over-stored in American. We have 19 1/2 square feet for every man, woman and child in this country, and we need ten. So we have too many stores.
INSKEEP: Who decided that ten square feet of store per person was the appropriate amount?
Mr. DAVIDOWITZ: Interesting question, and I'll tell you how I came up with it. It was developed by me.
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Mr. DAVIDOWITZ: What I did was take the number of stores that closed and why they closed. Almost everybody closed because of too much competition. What happened? Wal-Mart came along and closed them down. The consumer made a choice to choose Wal-Mart. Their prices were low or the stores were bigger, blah, blah, blah, blah, blah.
But the point is if all of this competition didn't develop, these guys would've been fine. They were in business 60 years and they all collapsed.
INSKEEP: Is there also a problem with stores that have their own debts that they're having trouble paying?
Mr. DAVIDOWITZ: You're absolutely right. Retail debt is up 30 percent, it's exploded. Now, it's a combination. Some retailers have a lot of debt and they're not in trouble. If you take Six Flags - huge amusement retailer - they've got a, you know, 2.7 billion debt load, but they're able to handle it. Blockbuster has a $700 million debt load; they're up to handle it.
Other retailers are in danger. Be it Linens and Things, Talbots. There's a lot of people in trouble with their debt. This is a terrible time to be dependent on bank debt and be in trouble, because the banks will be unmerciful.
INSKEEP: Are a lot of those retailers that are in trouble in situations where they sometimes need to get an extra loan or line of credit just to get through a bad month?
Mr. DAVIDOWITZ: Yes. I would say not a bad month, certainly a bad season. If you need an extra line of credit to get through a bad month, you're already finished. But yes, there are retailers whose line of credit are being taken away because A) they're in default, or B) their line of credit has expired.
Talbots is in default. They've got to put something in place so they can order merchandise for next year. My hunch is the Japanese, who are the major owners, will step in and help them. But if they don't, Talbots' life could be at stake.
INSKEEP: Oh, because if you're a storekeeper or a chain owner, you're probably going to buy your merchandise on credit and promise to people back later. You're borrowing money all the time.
Mr. DAVIDOWITZ: Yes, sir. You're borrowing money all the time.
INSKEEP: Well, that raises the next question then. Are there retailers that have a fundamentally sound business model who are basically making money but they do need to borrow for inventory from time to time and because of the financial mess, they're suddenly unable to borrow and unable to do business even though it's a sound business?
Mr. DAVIDOWITZ: Absolutely. There are many retailers out there - Pier 1 and a whole list of them - who maybe could operate okay if they got some forbearance. But it's a terrible time to be dependent on bank debt.
INSKEEP: Well, this raises one more question then. If in fact there are 19 square feet of retail space for each person in America, and in your view there really ought to be more like ten, and if we are going to see thousands and thousands more store closings, what kind of business can anybody do with all those empty shopping malls?
Mr. DAVIDOWITZ: Excellent question. A lot of shopping malls are closing as we speak, and they're being used as alternative uses. For example: they're building hospitals, they're building hotels, they're building condos, they're building all kinds of things. The problem is we might not do more retail.
INSKEEP: Howard Davidowitz, thanks very much.
Mr. DAVIDOWITZ: And thanks so much for inviting me.
INSKEEP: And we'll continue our conversations about debt tomorrow when we'll look at auto loans, which Americans are finding it harder to pay.
Unidentified Man: People have been sold the American dream, which is a beautiful, sexy, hot car that's going to make everybody envy them. And now they're sort of paying the price for making a poor decision.
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