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Wednesday, November 12, 2008 4:35 AM

Retail Tsunami Hits Gift Cards And No. 2 Mall Operator

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Reuters is reporting Weaker gift card demand to hit post-holiday sales.

The once-hot holiday gift card may be losing some of its luster, dealing a setback to struggling U.S. retailers who count on the cards to drive consumers into stores for a post-Christmas shopping spree. As shoppers have witnessed a slew of retail bankruptcies this year, they are showing some reluctance toward buying the cards as gifts for friends and family.

And with retailers already rolling out tremendous discounts to entice consumers to spend their limited dollars, shoppers may find they can buy presents this holiday for less than what they were planning to spend on a gift card.

"We do see a decline in the demand for gift cards," said Darrell Rigby, head of Bain & Co's global retail practice. Consumers "may be able to give a gift with higher perceived value by getting actual merchandise than by just giving a gift card," he said.

This year, consumers have watched as a slew of retailers, including Sharper Image, Linens 'n Things, and Mervyn's, have filed for bankruptcy protection, placing millions of dollars of unused gift cards into question.

Fear that a retailer will go out of business is prompting shoppers to shy away from gift cards, according to a survey by America's Research Group conducted for Reuters.

The survey found that 43.2 percent of respondents said they will give gift cards less often this year because they are worried that those cards would be worthless if a retailer files for bankruptcy.
Circuit City Inspired Shopping Tips

Flahsback October 21, 2008: Circuit City Inspired Christmas Shopping Tips
Shopping Tips

If you are thinking about buying someone a Circuit City gift card, think again about what you are doing. There is no reason to expect Circuit City to survive. Its stock is trading at $0.35.

If you already have a Circuit City gift card, please go use it. If you hold that card after it files bankruptcy, the card will likely be worthless.

Maintenance contracts are normally a waste of money in any circumstances. In the case of Circuit City it is extremely ill-advised to buy them.

Bear in mind that all Circuit City purchases are likely to be final. Unless they have a very compelling offer on something you want, at a lower price than elsewhere, I would stay away altogether.

The above advice pertains to any struggling retail merchandiser, not just Circuit City.


Regardless of where you shop, my advice is to shop less and save more. Your job may be in jeopardy and you might not even know it. Frugality is the new reality for consumers and businesses alike.

A penny saved is a penny got. That penny is likely to be worth more tomorrow than it is today. It is one of the consequences of the deflationary times we are in.
No. 2 mall operator warns of bankruptcy

Weak retail sales and a credit market freeze is hurting mall operators. General Growth Properties, the No. 2 mall operator warns of bankruptcy.
General Growth Properties Inc., the No. 2 mall operator in the United States, has warned that an ongoing slump in retail sales, combined with the credit market lockdown, has pushed the company to the brink of bankruptcy.

Chicago-based General Growth Properties said in an SEC filing late Monday that it has $900 million of property secured debt and $58 million of corporate debt coming up for renewal by Dec. 1. It also faces another $3.07 billion in debt that matures in 2009.

But "given the continued weakness of the retail and credit markets," the mall operator fears it may not be able to refinance its loans at lower rates to meet its short-term cash needs.

Shares of General Growth Properties (GGP) tumbled 66% to 46 cents on Tuesday.

General Growth announced in August that it might sell some assets to raise capital for servicing its debt. The company operates more than 200 malls -- including the Paramus Park Mall in New Jersey, Cumberland Mall in Atlanta, Water Tower Place in Chicago and the Glendale Galleria in California -- in 44 states.

Store vacancies at regional malls are up 6.6%, the largest increase since early 2002, according to real estate research firm Reis.

In some malls, store occupancy rates are falling below 75%.

"You can keep a mall open with 60-70% [store] occupancy," Friedman said. "But if it falls to below 40%, then the weakest malls could be forced to close."

"We are in a real retail tsunami right now," Friedman said.
I warned of this on August 10th in Margin Calls At General Growth Properties
Given that the Shopping Center Economic Model Is History and credit is tightening everywhere, General Growth Properties is going to be in deep trouble if credit conditions remain as they are, or even if they improve slightly. I expect credit conditions to worsen.
Chicago Water Tower Place

Note that Water Tower Place is on the list of properties owned by General Growth Properties. The image below is Water Tower Place, a very high end retail store on what is known as the "Magnificent Mile" shopping district in Chicago.

Located along North Michigan Avenue North of the Chicago River THE MAGNIFICENT MILE features big-name retailers like Bloomingdale's, Macy's and Saks Fifth Avenue, while smaller shops and boutiques fill in the space between. Although there are more than 400 retailers lining the street, there is plenty of room for the pedestrians to walk along the wide sidewalks.
The magnificence has run out for General Growth Properties. It has too much debt and no way to finance it. It can kiss it's retail empire goodbye.

Mike "Mish" Shedlock
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