With sales plummeting and none financing suitable for reorganization, struggling retailers such as Bon-Ton and Dillard’s may be in swollen derange

By Matthew Boyle

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This holiday make palatable, any retailer not named Wal-Mart (WMT) has understanding to worry. Paltry profits and debt-laden balance sheets mean some players are facing not regular tough times, further potential extinction. With U.S. retail sales taking a record 2.8% make last month and Deloitte Research’s consumer spending index turning negative for the in the beginning time since 1980, the climate is unforgiving. Big names such as Circuit City (CCTYQ), Linens ‘n Things, and Steve & Barry’s are among the 22 merchants that have already filed with respect to bankruptcy this year. While retailers who filed for bankruptcy in recent years often could live to see another day, that may not one longer exist true. "You can’t get the financing to reorganize, so we are in a world of liquidation," says Howard Davidowitz, chairman of retail consultancy Davidowitz & Associates.

The question now is: Who is most at risk? Retailers who are No. 2 or 3 in their categories—witness Circuit City’sitting position pertinent to Best Buy (BBY)—behold particularly vulnerable. Not only are they likely to face steeper sales declines than stronger rivals, moreover many took on excessive debt to fund expansion amid the cheap interest rates of fresh years. The number of credit rating downgrades by reason of retailers from Standard & Poor’s this year—53—has already surpassed the total for whole of 2007, and S&P says it’s likely to issue more before yearend. "It’s been a a long duration of one’s life time from that time we’ve seen an environment as challenging for the reason that this," says Deloitte Research Chief Economist Carl Steidtmann.

Analysts are keeping a close eye on regional department stores such being of the class who York (Pa.)-based Bon-Ton (BONT) and Little Rock-based Dillard’sitting (DDS). Both chains be obliged long been dwarfed by the likes of Macy’s (M), Kohl’s (KSS), and J.C. Penney (JCP) and have seen their credit ratings slip in recent months in elucidation of falling sales and rising leverage.

Bon-Ton, with same-store sales below the horizon 6.3% so far this year, looks the most challenged, analysts say. The chain has hard debt after spending more than $1 billion to buy 142 stores from Saks (SKS) two years agone, and its stores are mainly in the struggling Rust Belt. While Bon-Ton declined to comment, it issued a statement on Nov. 6 to say the chain has "excess borrowing capacity" under its credit quickness. As S&P analyst Diane Shand notes: "The big worry is whether their vendors get nervous and don’familiarily ship to them."

Dillard’s, meanwhile, has already closed 20 of its 330 supplies this year amid a 6% sales decline, with more closings planned in succession account of 2009. It’session furthermore facing investor pressure to overhaul senior management, which is dominated by members of the founding Dillard family. Dillard’session says it currently has plenty of room to borrow beneath its $1.2 billion credit facility, moreover Fitch credit algebraist Monica Aggarwal argues declining sales and profit margins bequeath pressure the company "for an extended period of time." Analysts are skeptical about the chain’session ability to turn itself around.

Women’s apparel workshop Talbots (TLB) is one more retailer to watch. Same-store sales in its third quarter dropped 14%, and the company recently decided to jettison the J. Jill casual clothing brand it bought two years past for a half-billion dollars. The issue is whether they’ll find anyone to buy it. "J. Jill was an asinine acquisition," says Antony Karabus, CEO of retail consultancy Karabus Management. Talbots, which has begun offering heavy discounts, declined to remark. For all the struggles of the holiday season, activity observers agree that the real shakeout could come in January. As Neil Stern of retail consultancy McMillan Doolittle says: "It’s going to get extremely ugly post-Christmas."