In 'the eye of the storm,' retailers shut their doors

November 15, 2008|By Lorraine Mirabella | Lorraine Mirabella,lorraine.mirabella@baltsun.com

As a government report showed yesterday that sales at the nation's retailers plunged to record lows in October, employees at Lauman's Home Furnishings in Perry Hall prepared to shut down for good.

Sales at the 27-year-old furniture store on Belair Road slowed during the past year after customers lost jobs, were turned down for credit or put off buying new sofas, chairs and other furnishings amid the housing slump.

But in the past two months, "It just really went beyond slow, and what else do you do?" said Michelle Kamp, the store's manager. "The consumer is being squeezed from everywhere. We see that. Due to the economic conditions, we really just felt like we could not continue."

The Commerce Department reported yesterday that retail sales in the U.S. fell by 2.8 percent in October. The drop was the steepest on record, more than the 2.65 percent decrease in November 2001 in the wake of the Sept. 11 terrorist attacks.

It was the fourth straight decrease and the longest stretch of retail declines since the Commerce Department began keeping track in 1992.

The figures, fueled by a pullback in automotive and furniture sales, helped spur more volatility yesterday on Wall Street. Stocks fluctuated before the major indexes lost at least 4 percent. A steady string of dismal sales reports by retailers this week showed that consumers began pulling back in October as never before.

"It's certainly pretty bad," said Adam York, an economic analyst with Wachovia. "This is going to be the weakest consumer cycle since the early 1980s, generally speaking. ... These are very important months for retailers, and I don't think it will get better."

Retailers already were struggling when the credit markets began collapsing in mid-September, and since then job losses have mounted, with more expected. Some analysts predict that unemployment, which hit 6.5 percent nationally in October, could reach 9 percent next year.

"We are in the eye of the storm," said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Conn. "The recession is clearly intensifying."

York said consumers are shopping for bargains but focus on the staples: food, gas and health needs.

"People are looking to save money where they can," he said. Sharp drops in consumer spending have forced national chains, car dealers and other local merchants to shut stores or go out of business.

Circuit City Stores Inc. filed for bankruptcy protection this week after announcing it will close 20 percent of its more than 700 stores, including three in Maryland. Electronics chain Tweeter is going out of business. Best Buy Co. Inc. blamed lower-than-expected sales reported this week on falling consumer spending, driven by the financial market turmoil.

Department store operator J.C. Penney Co. joined other retailers yesterday with weak sales results, saying its third-quarter profit fell by more than half. It lowered estimates for the rest of the year, saying consumers are taking fewer trips to the mall.

At Lauman's in Baltimore County yesterday, sales people launched a 60-day going-out-of-business sale.

They saw a flurry of business as prices were marked down in the showroom. Trucks brought in furniture to sell from the company's Middle River warehouse.

Wayne Lauman started the business in 1981, on a site where his father had run a butcher shop. Lauman sold the business to a group of employees a few years ago.

"Some [customers] said, 'If I buy this, you can reopen again. I've been buying here so long,' " Kamp said.

Workers said the slowdown began about a year ago when some customers canceled orders after losing jobs. And more people were declined credit through Lauman's outside financing sources as the housing slump intensified.

Kamp said customers with open orders will either get refunds, have their furniture completed by factories that are working with the retailer, or will have their orders transferred to a store in Frederick or one in Jarrettsville.

She said the chain has been able to avoid bankruptcy and is counting on its final sale to help with payments to its vendors and its lender, which has been working with the retailer.

Even luxury retailers are suffering. In Cockeysville, Michael Miller Furs is preparing to go out of business.

"It's not hard to figure it, when you look at everything, simply that it's increasingly difficult to do business," said Michael Miller. His grandfather started Miller Brothers furs and apparel in 1898. It was a fixture on Charles Street until closing in 1997.

That's when Miller opened Michael Miller Furs on York Road. He felt confident back in May, when he traveled to Montreal to buy inventory. But by September, "customers were expressing some concern about getting something new this time. It looked like it was going to be a really hard road."

One woman who was browsing recently said she couldn't buy a fur because she had lost $2,000 in the stock market the day before.

Miller said he worried about signing another lease, then about not being able to pay his debts.

"The manufacturers are glad to let you owe them money," he said, "but at a certain point you have to pay them. The best thing to do was to cash it in now."

For his going-out-of-business sale, which will start Monday, Miller said shoppers will find some furs and accessories priced at less than $1,000, "as low as anywhere in the world."

In additional to automobiles and furniture, the Commerce Department reported yesterday that the October sales decline affected all types of products, including clothing. Excluding autos, where sales are facing their worst levels in at least 20 years, retail sales fell by 2.2 percent, also a record decline, underscoring the widespread weakness last month.

Bloomberg News, the Associated Press and other wire services contributed to this article.

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