By Katherine Field

(November 12, 2009) The most optimistic of retailers, whether upscale or value, are still cautious over the impending holiday shopping season. Will it be marginal or disastrous?

According to Alan Cohen, chairman of Closter, N.J.-based turnaround and restructuring firm Abacus Advisors, how retailers manage their inventories and pricing strategies may well determine whether or not they survive the 2009 holidays.

“You can learn a lot simply by walking into stores and observing,” said Cohen, who has more than 30 years of experience working with distressed businesses in all aspects of management and operations. “Throughout the summer and fall, stores at outlet malls like Woodbury Common [in Central Valley, N.Y.] typically are full of great stuff. However, this year inventories appeared to be light at the likes of Neiman Marcus’ Last Call or Saks’ Off 5th. Since these and other better retailers were discounting heavily in their mainline stores, they didn’t have as much excess inventory to send to their outlet locations.”

Deep concern about both the credit crisis and cutbacks in consumer spending has translated into retail strategies marked by caution, Cohen noted. “Manufacturers produced less, and retailers ordered less. In the run-up to the 2009 holiday season, everybody was in a conservative mood.”

In the past, for example, retailers like Nordstrom would bring in holiday merchandise early and reorder the best-selling items. This strategic tool likely will not be available to them this year. “Reorders will be down significantly this year, simply because the merchandise will be unavailable amid these inventory cutbacks,” Cohen explained. “That puts retailers at a strategic disadvantage, and it means shoppers will have a harder time finding certain popular items.”

Naturally, Wal-Mart, with its robust grocery sales and aggressive promotions on categories like toys, books and entertainment products, stands to benefit in this cautious environment. “The discounters and off-price chains will continue to do well,” Cohen says. “People will be shopping this Christmas, but they will be very cost-conscious and trading down. Instead of buying five items, they will buy three. Instead of buying an expensive item, they will go with a moderately priced one.”

When all is said and done after the holidays, filing for Chapter 11 bankruptcy protection may be the only option for many chains, Cohen added. “I certainly see more bankruptcies down the road,” he said. “And we will also see vacancies going up at shopping centers and malls across the country. With a limited number of conventional retail, restaurant or entertainment tenants actively looking for space, landlords will be exploring alternative uses like dental or emergency clinics or, in the case of large big-box spaces, flea markets.”

Despite some stock-market gains and a few positive economic indicators, Cohen believes the recovery will be a hard, long slog and is anything but right around the corner. “Most of the profit increases you are seeing at publicly held companies are not being driven by traditional revenue improvements,” he said. “These gains are related to cost-cutting, and you just can’t cut costs forever to improve profits.”

It is telling that Wal-Mart is expanding faster in Europe today than in the United States, he added. “These are the times Wal-Mart says it lives for,” Cohen said. “But apparently Wal-Mart sees more opportunity overseas than in its own backyard.”

As a veteran retailing observer, however, Cohen has seen his share of recessions. It is all too easy to lose sight of the cyclical nature of retailing -- just as irrational exuberance can make a boom seem ever-lasting. In other words, so too can fear and cynicism make a nasty recession seem like a new reality that will never change.

“Outlet retail will always be here, and shopping centers will, too,” he said. “There may be some long memories that affect consumer spending habits on luxury brands, but the economy eventually will recover and people eventually will go back to their old ways.”

Cohen said that banks would do well to remember this: Slash-and-burn approaches that emphasize foreclosure over preserving and stabilizing assets make little sense, in part because it is the lenders themselves who end up footing the bill for property taxes, insurance, security and more. “The bankers who are financing distressed real estate ought to have a little more patience and common sense and give people some more leeway with their debt structures,” Cohen said. “Over time, this situation will work itself out.”