Summary
The 58-store chain Gottschalks is the first domino to fall in the department store industry as these chains struggle for survival in a weakened economy. Gottschalk's is the first of many more mall anchor closings that will impact regional malls and Mall REITs throughout the country.
Analysis
German immigrant Emil Gottschalk, who described his business as "the store that cares", founded the Gottschalks deparment store chain in California in 1904. Gottschalk's principally operated in small and middle markets in California and the western U.S. California is struggling with 10% unemployment and some of Gottschalk's markets in the interior of California are amongst the hardest hit housing markets in the country (i.e., Sacramento, Stockton). Gottschalks also operated in such notable markets as Moscow, ID and Wasilla, AK.
Mall REITs impacted by these closings include General Growth Properties, Macerich and Simon Property Group. In most instances these 58 locations already contain units of JC Penney, Macy's and Sears and thus won't make sense for them. These locations are also not a good fit for luxury department stores and they have their own struggles of late.
In short, these are going to be very difficult anchor boxes to fill with a replacement department store. Mall redevelopment by the owner is not a likely option either given these mostly small market locations and the current capital markets environment. This is first wave of more department store closings that will also have an impact on the major mall REITs.
