As Retail Chains Fold, Shoppers Flock To Bargains In the past few weeks, some retail chains have gone out of business, or filed for bankruptcy protection. Retail consultant Howard Davidowitz traces the problem to increasing online sales and the credit crunch, among other factors.
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As Retail Chains Fold, Shoppers Flock To Bargains

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As Retail Chains Fold, Shoppers Flock To Bargains

As Retail Chains Fold, Shoppers Flock To Bargains

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  • <iframe src="https://www.npr.org/player/embed/93364759/93364732" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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STEVE INSKEEP, host:

The country's big retailers are releasing their latest sales figures today, and the numbers may reflect just how much consumers have had to cut back spending because of the tough economy. The last few weeks have seen even more retail chains file for bankruptcy protection than before. And that inspired us to call back retail consultant Howard Davidowitz.

We last spoke a few months ago when clothing chains like Ann Taylor were on the way down, and now we've got even more: Mervyns, Boscov's. What's happening?

Mr. HOWARD DAVIDOWITZ (Retail Consultant): We've got a long list of bankruptcies, reflects the weakness of the consumer. If you look at them you've got Goodies, you've got Shoe Pavilion, you've got Linens 'n' Things, you've got Lillian Vernon, you've got Bennigan's, you've got Steak and Ale. Seven to eight thousand stores are going to close this year. The consumer is simply stretched to the limit. They can't borrow anymore. We're in a credit crunch. And they're spent out. And this is causing a problem at retail.

INSKEEP: Let's make sure we're not getting this too much out of perspective, though. Aren't consumers still spending billions and billions of dollars, even if it's a few billion les than it was?

Mr. DAVIDOWITZ: Absolutely correct. The American consumer is still alive, of course. And companies like TJ Maxx is doing well, Ross stores is doing well, and of course Wal-Mart is doing OK, because of their price leadership position.

INSKEEP: Wait a minute. Price leadership position. Does that mean the people who sell stuff cheap are still selling lots of stuff?

Mr. DAVIDOWITZ: Absolutely. The cheaper, the better. Look at Family Dollar doing well. Look at Dollar Tree doing well. The consumer is looking for rock-bottom prices on basic goods, not discretionary, but they're looking to buy it as cheap as possible. Starbucks has just come out with a $2 drink after 2:00 o'clock - Starbucks - because of demands from their customer for more value.

INSKEEP: It's kind of a coffee happy hour, in other words.

Mr. DAVIDOWITZ: You've got it. Starbucks was losing market share to McDonald's and Dunkin' Donuts based on lower price. They've responded. This is what you have to do in this environment.

INSKEEP: Now, when you talk about the people still being in business trying to sell cheap, are they affected by the fact that the shopping mall is a little less full? You're sitting there in a shopping mall with 20 stores and six of them have closed and everybody suffers.

Mr. DAVIDOWITZ: It's very tough. When you see a Boscov's closing a group of stores, when you see Macy's closing seven stores - these are anchor stores; this is what draws the traffic. Home Depot is closing a group of stores. Malls are falling off, period, because people don't want to drive to malls. Urban is now more popular than suburban. That's why you see a company like Walgreen's and CVS doing OK. They're closer to the consumer. We're in a new paradigm.

INSKEEP: Is it possible that this economic trouble has just sped up a pattern we might see anyway? More and more people are shopping online and so more and more stores are going to end up dead.

Mr. DAVIDOWITZ: What I really believe is that the living standards of Americans are going to go down for the next 20 years. I think we are in a permanent condition. I of course agree with you with online sales. With Amazon up 38.5 percent, the online channel is growing. But that's only three and a half percent of retail sales.

But there's a permanent condition we have. The living standards of Americans - of most Americans - are going to be down on a permanent basis. When you look at Medicare, when you look at Social Security, when you look at our deficit to pay for all this, American's living standards are never going to be the same. We're going to have a tougher time for a long time. This isn't getting fixed fast.

INSKEEP: Howard Davidowitz helps us understand the retail industry. He's an industry consultant in New York City. Thanks.

Mr. DAVIDOWITZ: Thank you.

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