Chapter 11 Filings, March Same Store Sales and Blockbuster Store Closing Rumors

Retail Industry Weekly News April 5 - 11, 2009: U.S. Consumer Spending Shifts

The end of Joe’s Chapter 11 story did not have such a happy ending, however. The 79 year-old chain will not live to see its 80th anniversary after being sold in bankruptcy auction last week. Liquidation of the chain’s 31 stores and $128.5 million worth of inventory has already begun.

Ultra Stores, Z Gallerie, and Fatburger all added their chains to the growing list of retail industry Chapter 11 filings last week. That brings the number of major U.S. retail industry Chapter 11 filings in 2009 close to two dozen.

One other notable filing last week came from Blockbuster. In papers filed with the SEC last week, the global entertainment retailer said that it has "substantial doubt about our ability to continue as a going concern." This has raised speculation about whether Blockbuster is preparing to close all 7,400 of its stores situated around the world. To say that the demise of the chain is imminent would be jumping to the most pessimistic conclusions. Still, one has to wonder what the motivation for filing that kind of statement would be unless the obvious conclusion was inevitable.

Blockbuster had just announced recently that it had renegotiated the terms of a major debt with JPMorgan Chase. It’s hard to tell whether last week’s SEC filing is a result of facing the reality of the new loan terms, or whether it is a strategic move on the company’s financial chess board to better its position with other creditors and leaseholders. In any case, Standard & Poor’s Ratings Services is not optimistic about Blockbuster’s future and has labeled the company as “highly speculative.”

When I drove a business associate to the airport yesterday, she was enthusiastically telling me about a partnership between iTunes and Delta Airlines which gives you the opportunity to download a movie to watch during your flight as part of the airline’s online check-in process. I had to wonder if the Blockbuster team ever thought about making that type of deal with Delta or any other airline.

Perhaps in their microscopic focus on present-day economic conditions, and the struggle to generate respectable quarterly sales reports, some retail companies are discounting the cues that American consumers are giving about what products and services are essential, and what things are no longer necessary, important, or viable today or in the future. To make the assumption that this shift in consumer spending is completely money motivated and temporary may be the first step down a short path to extinction for many retailers.

Those that are gone will forever blame the economy for their demise, but those that remain will know better.