Retail retrenchment hurts malls

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At the once-sizzling Paradise Valley Mall in Phoenix, 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.

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