By Barbara Thau
NEW YORK–The struggling economy has retailers in retrenchment mode.
Faced with a perfect storm of negatives—the recession, soaring gas prices and the housing market malaise—retailer chains ranging from Home Depot to Ethan Allen are closing stores and tempering expansion plans.
The pull-back is one facet of the efforts of merchants, including J.C. Penney, Kohl’s and Dillard’s, to run as lean and mean as possible by cutting capital expenditures and keeping inventory levels low.
Meanwhile, the store closings triggered by Chapter 11 filings—120 stores cut from Linens ’n Things, 90 stores chopped at The Sharper Image—along with liquidation of furniture chains Bombay, Levitz and Wickes, mean “store closing” signs are going up across the country.
J.C. Penney began tightening last month. The chain had released plans to open 50 stores each year through 2011, but now says it will open only 20 stores next year.
The cuts are an outgrowth of what J.C. Penney calls its “bridge plan”—a strategy to weather the sluggish macroenvironment. The plan includes a further reduction in capital expenditures for 2009 to approximately $650 million, versus $1 billion expected for 2008.
The retailer will also “rigorously” control inventory levels, Mike Ullman, chairman and chief executive officer, said in a statement. He described the coming year as “a period that we expect to remain very challenging for the American consumer.”
Home Depot set plans to close 15 stores this spring. It also ditched plans to open 50 new stores, “in some cases for more than 10 years,” the retailer said in a statement.
The home improvement giant also cut capital expenditures for the year to $2.3 billion from $3.6 billion in 2007.
The difficult economy has prompted Kohl’s to slow its expansion plans, Larry Montgomery, chairman and CEO, said during the retailer’s annual meeting this spring.
Following some heady expansion years, Kohl’s probably won’t reach its previously announced goal of 1,400 stores by 2012, he said.
“We’re probably going to take a couple of years longer than we originally planned to get to that,” Montgomery said. “We’re kind of going to take the temperature of the economy every year.”
Still, as competitors close stores, Kohl’s expects to take advantage of real estate opportunities, Montgomery said.
Kohl’s will open about 75 stores this year. Last year, Kohl’s opened 112 stores. In addition, the retailer is planning conservative sales estimates and bringing down inventories accordingly.
Ethan Allen has said it will close 12 stores this year and Dillard’s plans to shutter 13 stores.
At its annual shareholder’s meeting this spring, William Dillard, CEO, said the retailer’s long-term focus on closing underperforming stores would continue.
And due to “the macroeconomic uncertainty,” the retailer took a “dramatic turn” with regard to reducing spending in 2008, according to a statement.