Retailers Face Hazards Of Debt and Low Demand

Failing consumer confidence has deflated many stores' sales expectations

THE turmoil surrounding R. H. Macy & Co. - which has been inching closer and closer to bankruptcy for months - is only the tip of the iceberg for the United States retail industry, experts say. Not only Macy's, but many of the nation's best retailers are facing bleak times, as consumers continue to cut spending.

Bankruptcies are on the rise, particularly among small and medium-sized firms. Many retailers are trimming staff, slamming the doors shut on marginal stores, deferring capital-spending programs, and reducing inventories.

"The situation is definitely very grim," says Janet Mangano, an analyst with Burnham Securities Inc., and the former publisher of the Johnson Redbook Service of Lynch, Jones & Ryan, a leading source of retail trade information. "There's very low consumer demand for just about any product, from retail goods to cars. Lower interest rates have not yet filtered down to consumers."

Macy's, one of the nation's largest retailers with 251 stores in the US, including the I. Magnin and Bullock's chains, is currently struggling to avoid bankruptcy. An offer to take over the chain - by Laurence Tisch, chairman and chief executive officer of CBS - has been rejected by Macy's largest creditor, the Prudential Insurance Company of America. A new offer by Mr. Tisch, or other potential buyers, is still possible.

Retail sales for 1991 were the flattest in three decades, according to the US Commerce Department, rising 0.7 percent, the smallest annual gain since 1961.

Still, a bad 1991 does not necessarily translate into an equally bad 1992, according to analysts such as Terence McEvoy, of Janney Montgomery Scott Inc. In a recent report he notes that interest rates are low, real income is slowly rising, and inflation poses no threat. He anticipates higher spending in the months ahead, as the economy rebounds.

KURT BARNARD, who publishes Barnard's Retail Marketing Report, says that for all its current woes, "retailing in general is in reasonably decent shape." Mr. Barnard explains that the retail industry will be going in two separate directions during the 1990s. Upscale department stores and expensive specialty stores will have some "very tough times," given consumer reluctance to pry open wallets. On the other hand, discounters - especially those who "pre- sent themselves beautifully," will do well. Such sto res, he says, include The Gap, The Limited, and Wal-Mart Stores Inc. Measured by sales, Wal-Mart replaced Sears as the nation's largest retailer.

The retail-sales slump comes when consumers are turning to alternative merchandisers, such as catalog merchants, factory outlets, and companies selling door-to-door. Earlier this month, New York-based retailer 47th Street Photo Inc. a chain of consumer electronics stores, filed for Chapter 11 bankruptcy protection. Other chains that have sought bank-ruptcy protection recently include Zale Corporation, the nation's largest jewelry retailer, Seaman Furniture Company, and Sterling Optical Corporation.

The 1991 holiday season turned out to be particularly unhappy for many retailers, as consumers held off on buying big-ticket items. Layoffs by major companies such as IBM and General Motors helped spook already skittish shoppers, retail experts say.

Ms. Mangano, of Burnham Securities, says consolidations, restructuring, and downsizing will characterize retailing in the years ahead. May Department Stores Company, she says, is well positioned for the '90s, given its attractive stores and midrange prices. May's stores include Foley's, Lord & Taylor, May Company, Hecht's, Filene's, Famous-Barr, and others. Another strong chain, she says, is Federated Department Stores, which is just emerging from bankruptcy; Federated and its sister chain, Allied Stores , have reduced their debt from $7.5 billion to $3 billion.

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