Broken Holidays

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Retailers across the state are slashing prices, increasing hours and even enticing shoppers with free merchandise this holiday season to compensate for a dismal economy.

But several bankruptcy law attorneys anticipate a number of businesses may have to close their doors, regardless of whether their promotional tactics succeed in attracting consumers.

“I think that there are going to be a number of big-box retailers out after Christmas,” said Paul G. Swanson, who chairs the Bankruptcy, Insolvency and Creditor’s Rights Section Board of the State Bar of Wisconsin.

Scaling Back

Attorney Timothy F. Nixon, who heads up the Bankruptcy & Restructuring Law Practice Group at Godfrey & Kahn, S.C., said many retailers may let the receipts settle before making a decision about whether to file for bankruptcy.

Nixon said at this point, attorneys can help retail clients evaluate their contracts with vendors and landlords.

“You need to ask a business, ‘Why are you in distress?’” Nixon said. “Is it just because of the general economic downturn, or are you in a location next to a giant retailer or in a half-empty mall.”

While Mayfair Mall in Wauwatosa is heading into the holiday season with 100 percent capacity, general manager Steve Smith said he realizes some retailers within the complex will likely suffer during and after the season.

“I don’t think there is any question that there will be some fallout in every mall in the country,” said Smith. “I think we’ll start to realize the impact in January.”

He declined to speculate on whether any permanent fixtures could vacate their space soon after the holiday season. The mall’s parent company, General Growth Properties Inc. recently announced it may file for bankruptcy if it cannot refinance or resolve nearly $1 billion in debt.

Swanson said he has fielded a number of calls from clients who want to know how secure their stakes in commercial businesses are, as well as what their options are if the business folds.

He noted a recent conversation with a supplier to an outdoor sporting goods outlet, who expressed concern regarding the stability of the company.

“He wanted to know how to protect himself,” said Swanson, of Steinhilber, Swanson, Mares, Marone & McDermott, in Oshkosh. “The thing about it is, people might be telling themselves I don’t need to buy that kayak today.”

Chapter 11

To this point, Chapter 11 filings and downsizing have not discriminated against large retailers, as Circuit City, the chief competitor of Best Buy for home electronics, filed for bankruptcy in November, a week after announcing it would close more than 155 stores.

But attorney Daryl L. Diesing of Whyte Hirschboeck Dudek S.C. said his conversations with clients in Wisconsin have yet to seriously involve plans to file bankruptcy.

In the meantime, Diesing said he is working with clients in a counselor capacity to make sure they are not overextended and have enough money in reserve to survive a subpar holiday shopping season.

“I think we’re ready if people get into bigger trouble, but today bankruptcy is a last resort,” Diesing said.

At the same time, Diesing said if a retailer needs to reorganize in bankruptcy, executives should be addressing those issues now, instead of during the early part of next year when profitability is low.

“The build-up of cash during the holiday season is often needed to take retailers through down months, so if they are not planning for it now, as a contingency, it’s going to be difficult to wake up in March and say, ‘I need to save my business,’” said Diesing.

Smaller and independent retailers, especially those dealing in luxury gifts, could be more immediately vulnerable to bankruptcy, Swanson suggested.

“All the places that sell ‘toys’ are going to be hurting,” Swanson said. “The discretionary income just isn’t there this year.”

Swanson said he has seen snowmobile retailers struggle at a time when people typically gear up for the winter sporting season.

“Are people going to postpone purchasing that hot tub for something more modest?”

Diesing said. “I’ve got to think the answer is yes.”