Over the last few years, people have decreased their spending habits dramatically. The American Consumer went from a Personal Savings Rate of 1.2% in July 2008 to 5.0% in July 2011. Many industries saw their lowest sales figures of all time during the last three years, such as new car purchases, restaurants, and construction. An unemployment rate hovering around 9% has meant there is also less money for consumers to spend on ‘luxury’ items, or anything that is not considered a necessity (food, clothing, shelter).
We all know that necessities such as food and gas have increased in cost. Also, the worldwide credit crunch meant that some businesses simply did not have the cash flow to service debt and continue operations. In some cases, the economic crisis just added to bad business practices and poor money management, exacerbating the situation and taking the brand to bankruptcy. In other cases, it was a direct result of the recession alone.
From my perspective, shopping for discounts has been a pleasure as all of the unsold merchandise has surfaced in discount chains for 50% and lower of the normal cost, or ended up on clearance racks within brand name stores at killer prices. While deals have been incredible for consumers with money, the other side to the equation is that many companies have gone out of business due to the slowdown in consumer spending. Let’s take a look at some of the retail casualties of the recession.
Details of Brand Bankruptcies
Levitz/Bombay Furniture Store: One thing that consumers tend to not purchase in a sluggish housing market and in the wake of the subprime mortgage crisis is furniture, a product that is not a necessity. Levitz’s largest creditors were owed $25 million as of December 2007 (among the creditors are Sealy, who Levitz owed $1.4 million to). Seventy-six stores were closed and the company was liquidated in a Chapter 7 bankruptcy filing.
Filene’s Basement: Filene’s Basement was a high-end department store that operated 36 stores. Owners Retail Ventures Inc. sold 11 stores before selling the remaining 25 stores to The Buxbaum Group for liquidation purposes on April 22, 2009.
Ritz Camera Centers: Ritz announced it was going out of business on February 20, 2009, and by March 20, 2009 it began the liquidation process.
Circuit City: Circuit City, the second largest electronics retailer behind Best Buy, liquidated its physical stores in 2009, and on May 11, 2009, Systemax purchased the brand, trademark and e-commerce business at an auction for $6.5 million. They are now selling online electronics at circuitcity.com. Over 30,000 employees lost their jobs.
Linens ‘N Things: This is a bedding and furniture retailer that, at its height, was operating 571 stores. On May 2, 2008, operating with a net loss of $79 million the year before, Linens ‘N Things filed for a Chapter 11 bankruptcy. The company relaunched as an online retailer in February 2009, and remains so today.
KB Toys: Beginning in December 2008, this brand was liquidated after being in business for 88 years. KB previously had operated 605 stores (at their height they operated 1300). On September 4, 2009, Toys’R Us announced that it had acquired KB’s website, trademarks, and intellectual property rights for $2.1 million. Looks like there is a KB Toys website in the works.
What Brand Bankruptcies Mean to You
As a consumer, you need to be careful with gift cards that you have not redeemed. Many companies refused unredeemed gift cards once they declared they were going bankrupt, leaving consumers on the hook. Also, you might be able to find great deals with going out of business sales, such as the one that recently took place at Borders.