GOT SCHALKS?

Gottschalks’ Ch 11 filing is theoretically a short-term negative and LT positive – that is, if capacity actually goes away (doubtful). ROST is the big loser, with JCP, M and TGT next in line.

Another retailer down. Gottschalks filed for bankruptcy last week after running out of gas on its $125mm debtor-in-possession financing from a group of lenders including GE Capital. The company says it will conduct business “as usual” during the process while it attempts to find a buyer. Good luck finding vendors that will ship ‘as usual.’

The common view is that when a retailer shuts its doors, there is a near-term margin hit for competitors due to irrational pricing, but that gives way to a cleaner and more sane market. My problem with this is that it simply does not usually work out that way. The stores usually end up simply switching hands or lingering in a state of mediocrity. This time around, I’d argue that creditors don’t want to own these stores, and those who are liquid long cash in retail are probably not looking and aged legacy department store assets. Let’s not forget that GOTT has meaningful overlap with Mervyn’s, which account for a combined $2.7bn in apparel/home furnishings sales.

Who are the losers? ROST takes first with roughly 3.5% of its stores overlapping a Gottschalks or Mervyn’s in a 5 mile radius. JC Penny and Macy’s have the next best exposure to the bankrupt stores.