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Retailers are now tightening their belts

Downturn forcing closures, elimination of unprofitable divisions

NEW YORK — With consumers on a spending diet for the past six months, the nation's top merchants are tightening their belts in what some analysts predict could be the leanest times since the early 1990s.

That means cutting back on expansion plans, closing stores and selling or shutting down unprofitable divisions. Some retailers are even delaying shipment of some of their spring merchandise by up to four weeks.

Home Depot Inc., struggling with a sales slump and a second consecutive quarter of lower profits, announced late last month that it's slashing new store openings by 11 percent this year. It's the company's first retreat on new store plans in five years.

Gap Inc., facing declining sales in all of its divisions, announced two weeks ago that it's cutting back its expansion rate to 15 percent in 2002 and 2003. The original projection was new-store growth of 17 to 20 percent.

The Limited Inc., which earlier this month reported an 18 percent drop in fourth-quarter net income, is selling its Lane Bryant division and restructuring its beleaguered men's apparel business.

Federated Department Stores Inc. is closing its underperforming Stern's department store group. More than a third of the division's 7,400 jobs will be lost as most of the 24 Stern's units are converted to Macy's and Bloomingdale's.

Lechter's Inc., one of the country's largest housewares retailers, said it will close 166 of its 490 stores and eliminate 725 full-time jobs, or one-third of its full-time staff. And J.C. Penney Co., faced with a second straight losing quarter, shuttered 45 stores last year, and said this year it will close another 47 stores and catalog centers. Already Penney's has cut about 5,500 jobs.

The sluggish retail environment helped seal the fate of two prominent but struggling retailers — Bradlees Inc., based in Braintree, Mass., and Montgomery Ward, the 128-year-old Chicago merchandiser owned by General Electric Co. And analysts expect there are more failures to come.

"This is another round of Darwin economics. It's survival of the fittest," said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, a New York-based consulting firm.

"The economic downturn is taking momentum out of the mediocre retail players," said Richard Schaeffer, managing director of retail and consumer products practice at Ernst & Young Capital Advisors.

Of course, not everyone is floundering.

Wal-Mart Stores Inc., the world's largest retailer, is accelerating expansion plans for its super centers this year. The company expected to open 170 to 180 of the megastores.

And many aren't wasting any time moving in on defunct stores' real estate. Target Stores Inc. is spending $700 million to buy and refurbish 35 former Wards stores. The majority of the sites are in prime California markets. High-flying clothing retailer Kohl's Corp. is buying the rights to occupy 15 former Bradlees stores in the Northeast.

Clearly the economic boom, fueled by a rocketing stock market and high consumer confidence, gave many retailers a good reason to embark on bold expansion. Even fashion companies like Tommy Hilfiger, Kenneth Cole and QuikSilver moved quickly to add flagship stores in some major cities.

The net gain in the number of stores is expected to considerably slow from a high of 7.2 percent in 1999 to a projected 3.3 percent this year and next.

"1999 was the year of the store," said Faith Hope Consolo, senior managing director at Garrick-Aug Worldwide, a national retail leasing firm. "Now, many companies are pulling back. It's very unsettling."

Michael P. Niemera, vice president of Bank of Tokyo-Mitsubishi, said stores are readjusting to the 2.5 percent sales gain seen over the past six months. That, he predicted, will be the norm for the next year or so, down sharply from the 5 percent increase merchants enjoyed during each of the past three years.

The most vulnerable sector, according to analysts, is apparel, which has enjoyed a five-year run. Gains in square footage for apparel chains is expected to slow this year to 3 percent, down from last year's 4 percent, according to Banc of America Securities.

Sluggish apparel sales this year have forced some stores to delay shipment of spring goods by several weeks, according to Michael F. Cipriani, senior vice president of Rosenthal & Rosenthal, a financial credit firm.

The retail shakeout isn't considered good for consumers as they face more limited shopping choices. However, Therese Byrne, owner of Byrne Associates, believes the situation is only temporary.

"The good news is that you will see a resurgence of niche retailers that will offer customers new alternatives to the mass stores," she said. "The consumer demands novelty."