The signs that smaller retailers are struggling are unavoidable at malls across America: "Going out of business" sales at many Wilsons Leather stores. "Up to 70 percent off" at KB Toys.
At the once-sizzling Paradise Valley Mall in Phoenix, Ariz., the space once occupied by Bombay Co., the furniture chain that went bankrupt last year, is empty. Wilsons just finished liquidating its inventory. KB Toys, AnnTaylor and American Eagle feature bold posters advertising steep discounts.
"I don't think it brings much business when all these stores are closed," said Michelle Green, a sales clerk at Fred Meyer Jewelers.
Around the country, mall centers are starting to feel the recoil from a rapid expansion in recent years that allowed retailers to aim stores at almost every niche, from shoppers who wanted Talbots clothes for their children to those who craved Bombay's little wood tables.
Now, consumers who are closing their wallets amid rising gasoline prices and a housing slump are forcing specialty retailers to pare back their brands. While still healthy overall, mall centers in areas hardest hit by the housing downturn — like Paradise Valley — are suffering the most store shutdowns.
Retailers including AnnTaylor Stores Corp., Talbots Inc. and Pacific Sunwear of California Inc. have closed hundreds of stores so far this year. Gadget seller Sharper Image Corp. filed for bankruptcy protection last month and plans to shutter nearly half of its 184 stores.
That retrenchment, along with the Chapter 11 bankruptcy of catalog retailer Lillian Vernon Corp., marks the beginning of a wave of retail bankruptcies that's expected to go well beyond the home furnishings stores hurt by the housing malaise.
"This is economic Darwinism," said Dan Ansell, a partner at Greenberg Traurig LLP and chairman of its real estate operations division. "Those retailers and businesses that have a product that is desired by consumers will survive, and those who do not will not."
Unless the economy dramatically improves, Ansell believes retail bankruptcies this year could reach the highest level since the 1991 recession. More closings could leave gaping holes in the nation's retail centers, which have already seen average vacancy rates creep up to between 7 percent and 8 percent from 5 percent over the last six months, according to data from NAI Global, a commercial real estate services firm.
David Solomon, president and CEO of ReStore, NAI Global's retail division, expects the vacancy rate could hit 10 percent by the end of the year. Suzanne Mulvee, senior economist at Property & Portfolio Research, figures that vacancies could rise as high as 12.5 percent this year. Her figure includes retail spaces where tenants have defaulted on their rents.
Part of the problem, according to Mulvee, is that more retail space is coming to the market just as consumer demand is falling. Another 130 million square feet of retail space will become available this year, she predicts, on top of last year's 143 million. That is well above the average 100 million square feet added per year earlier in the decade.
As a result, markets like Phoenix, which had a retail boom, are expected to see the most dramatic increases in vacancies. Phoenix's rate is expected to more than double to 10 percent by the end of 2009 from 4.4 percent late last year, according to Property & Portfolio. In Kansas City, Mo., rates could rise to almost 17 percent by the end of 2009 from last year's 13.5 percent. In San Antonio, experts say the figure may hit 20.5 percent next year from last year's 17.4 percent.
Still, Solomon doesn't think the situation will be as dire as in 1991, when the savings and loan crisis hurt the entire country. Experts also say merchants are weathering downturns better because of new systems to control inventory and costs.
Nevertheless, consumers are seeing fewer stores that focus on specific niches, like apparel for women baby boomers or clothing for surf fans. That would differ from 17 years ago, when it was the department stores that felt the major shakeup as leveraged buyouts and fierce competition led to the demise of names like Carter Hawley Hale Stores and Woodward & Lothrop.
But there's one common theme: the power of national discounters like Wal-Mart Stores Inc., which helped seal the eventual demise of regional discount chains last time around. Now, the discounters' clout is hurting consumer electronics stores like CompUSA, which is closing most of its stores, and Circuit City Stores Inc., which posted dismal holiday sales.
Christina Avila, shopping at the Oak Park Mall in Kansas City, Mo. — which had more than half a dozen store vacancies — said she's cutting back because of the economy and spending more at places like Wal-Mart and Target.
"I'm more interested if they have clearance items," she said.
Michele Lipovitch of Phoenix said she only goes to the Paradise Valley mall twice a month.
"We have two kids. I have credit card debt I'm trying to pay off," said Lipovitch. "It's kind of scary because we keep hearing that it looks like we're going into a recession."
The industry pullback follows several years of rapid expansion and experimentation with a range of new store formats as retailers enjoyed robust consumer spending fueled by rising home values. But the sharp spending drop has made stores rethink how to expand their businesses.
Jewelry retailer Zale Corp. announced more closings last month, meaning it now plans to shutter almost 5 percent of its stores by the end of July. In January, Pacific Sunwear said it will close all 154 remaining Demo stores, which sell urban fashions. AnnTaylor is shutting down 13 percent of its stores and delaying a new store concept aimed at women boomers, while Talbots is closing its 78 children's and men's apparel stores to focus on its core middle-aged female customer. Macy's also has said it will close nine stores.
And Wilsons The Leather Expert is closing a majority of its 260 mall locations.
Analysts say they're watching to see if Circuit City closes any stores after posting a third-quarter loss and cutting its full-year profit outlook. Analysts also expect more store cutbacks at Sears Holdings Corp., which operates Kmart and Sears stores.
Some shoppers are not going to miss the casualties.
"They have nice clothes, nice urban wear, but their prices (are) a little high," said Tasha Burts, 35, of Demo at the Dolphin Mall west of downtown Miami. She walked out empty-handed.
Mall operators Taubman Centers Inc. and Simon Property Group say their top tenants — the department stores and other big chains that anchor most shopping centers — are in good financial shape.
Bill Taubman, chief operating officer of Taubman Centers, predicts more store closings and bankruptcies than last year, but doesn't think they will reach historic highs.
That will still mean a more limited selection for consumers, who until a few months ago had a plethora of choices, particularly when it came to furniture. Recent home furnishings casualties included Bombay and Levitz Furniture, which filed for bankruptcy in November and has been liquidating its inventory. Clothing stores, in a malaise since consumers see fashion spending as discretionary, could see widespread closures this year.