THE WARNING SIGNS WERE THERE

Implications: Sharper Image, Bon-Ton, Lillian Vernon, Buffets Holdings Inc., Gottschalks and several other retailers are in serious financial trouble according to this article, because of the current credit squeeze.   I am suggesting that the current credit squeeze has played a very small roll in accelerating the inevitable demise of these companies who basically committed  financial suicide by over leveraging and making poor business decisions. 

Analysis: Each of the retailers mentioned in this article have long suffered from declining sales and very heavy debt loads. To make matters worse they all suffered double digit declines this past Christmas season. The combination was simply too much and two of these companies (Sharper Image and Lillian Vernon), had to declare Bankruptcy.

Although it is an easy and seemingly obvious conclusion to simply write about how the current credit crunch "caused" their problems, it is intellectually and financially dishonest to lay the blame here. As most long term observers of the retail scene have long known, both these Chapter 11 companies are basically "item businesses".

Without new items to sell these types of companies lose sales in a dramatic fashion.  It is simply foolishness for Item businesses to carry seven-times leverage and then expect to borrow their way out of trouble when things get tough.
 
GLG readers of these pages should pay special attention to the underlying fundamentals of any retail company before investing in what might look like a good financial play . They are well advised to look beyond the easy answers because there are several other large retail companies that are on the verge of failure and in today's difficult refinancing environment, the conventional fixes are no longer good enough and the day of reckoning has arrived.