The economy has certainly tanked in the past few months, and unfortunately, many of the retailers that we have depended on for years have failed, while many others are on the verge of failing. Is the economy totally the blame? Or, are there other reasons that these retailers are no longer in business?
The economy can certainly take part of the blame. With the unemployment rate nearing 10%, people simply can not afford to shop like they did a year or two ago. With the stock market at a twelve year low, people are afraid to buy anything that falls outside the necessity category. People are being very conservative with their money and are not buying frivolous big ticket items such as TV’s, cars, and houses. With house foreclosures being higher than they have ever been, people want to use their money to keep their homes. Therefore, retailers are suffering. Even retailers such as Circuit City and Linen and Things can no longer afford to keep their doors open.
The economy can not be blamed for all of the failures. The companies themselves have made mistakes. Competition is strong in every area these days, and if a company does not compete well, they are going to go under. An example would be Circuit City who has been struggling for years. They changed their products (no longer carrying appliances) to try to stay afloat but finally folded. It is a truly “survival of the fittest” mentality in the retail world.
According to the article, Retail Watch: The Perfect Storm for Retail Failure (Blank Rome LLP), another reason that companies are failing is that the ability to secure credit has almost diminished. In the past, companies in poor financial shape would just reorganize and continue. But now, companies can not get credit and are forced into liquidation. According to Retail Wire, companies no longer have the option to choose reorganizing under the Chapter 11 code.
I do think we all have to take a little of the blame for our current state and for the retailers failing. People have over extended their credit and are now paying the price. This has certainly hurt the economy, and in particular, retailers. We, the public, can not use our credit cards like we did a year ago and the companies can not extend more credit. Credit spurs on consumerism and since it is not available, the consumer is simply making wiser cash based decisions.
While it is sad to see these retailers close, it will help us to see who are the well-runned companies. We will be able to trust them more. And, the next time, credit is more readily available, and the stock market rises, hopefully the retailers will have learned a lesson – sell good quality merchandise at a fair price and within a certain price point so that consumers do not have to go beyond their budgets to buy.
pictutre courtesy of savvywallet.com
