Tuesday, April 15, 2008

Mounting debt

I am a little skeptical about some of the unsubstantiated claims made in at article in the New York Times by Michael Barbaro entitled "Retailing Chains Caught in a Wave of Bankruptcies." The article purports to be about bankruptcies but many of the examples and the picture accompanying the article and the data graph are simply about store closings and slowed expansion plans, not bankruptcies. The common elements are mounting debt and over-dependency on housing. Those two topics would have made better focal points for both the overall article and its title, but I guess for some reason the bankruptcy angle was maybe more eye-catching. Besides, bankruptcy per se, especially in retail, is not a reliable indicator of anything. The need for cheap and readily available capital and debt is quite interesting, but the article really only glossed over that critical angle, calling it simply "mounting debt" and even going so far as to blame consumers and "declining sales" when finance and business strategy were the primary culprits. If the Times had focused on that debt angle and then given us some juicy data and details and some back-story about Wall Street's role in encouraging companies to take on debt, that would have made a great story, but as it is, the story ends up being mildly-botched and a better example of mediocre journalism. What really makes the story mediocre is that it is so late. Almost everything in the story has been going on for many months if not years (excessive accumulation of debt), so this comes across more as a "filler" article. Finally, nowhere in the article is there any data or evidence provided that retailer chains are experiencing "waves" of bankruptcies. That description seemed rather inappropriate. Wave of store closings, yes, but from reading the story, the count of bankruptcies seems only moderate, hardly a wave. Nonetheless, the all-too-brief mention of "mounting debt" at least partially redeemed the article.

It is actually a very good thing that debt-fueled retail expansion is slowing down. It was unhealthy for the economy and helped to push costs higher. It may take a bit longer to unwind the most egregious excesses of the Wall Street-inspired retailer debt binge, but it will be a benefit for the economy. Sure, there has been and will be some short-term pain, but the end result will be a healthier economy.

And maybe some enterprising entrepreneur will resurrect the Bombay brand and return it to its roots as an elite niche retailer rather than all the other things it tried to get into. If that happens, then its bankruptcy will have been a good thing.

-- Jack Krupansky

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