Fresno-based Gottschalks Inc. has called off plans to open two new smaller-format stores in California this year, joining a growing roster of retailers cutting back on expansion plans in the midst of an economic slowdown.
The 59-store chain, which lost $12.4 million in 2007, cited California's particularly hard-hit economy in its decision to wait until next year to open stores in the state. The company has not said where these stores would be opened.
"It makes no sense right now to aggressively expand during this economic slowdown," Jim Famalette, Gottschalks chief executive and chairman, said Wednesday. "We'd prefer to push those store openings off into 2009, when the economy's stronger, especially when it comes to California."
Gottschalks still intends to open one of its newer style stores in Bend, Ore., this fall, Famalette said. He said the retail chain will continue implementing other parts of its plan to improve performance and cut costs that it put in place last year -- after ending an 18-month search for a buyer for the company without success.
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Retail analysts said the decision to hold off on expanding made sense, given the poor economy and slowing consumer spending.
"Retailers can't force people to come in and spend money they don't have," said Rob Plaza, equity analyst for Chicago-based Zachs Investment Research. But retailers "can control the amount of inventory they have, and the amount of square footage they have."
"The easiest way to do that is, first, to stop building, and second, to shut down your underperforming stores. It's better to save your cash now while things are difficult."
The International Council of Shopping Centers predicts 5,770 stores will close in the United States this year, up 25 percent from last year, amidst an economic downturn that has driven retail sales growth rates to decadelong lows across the country in recent months.
Home Depot last week said it was canceling plans for 50 new stores and would close 15 underperforming stores this year. Other chains that have announced store closures this year include Starbucks, Foot Locker, Ann Taylor, Zales, Pacific Sunwear, Lane Bryant and Fashion Bug owner Charming Shoppes.
Gottschalks already announced it will close two stores this year, one in Moreno Valley and one of its two stores at Bakersfield's East Hills Mall.
Other chains, among them J.C. Penney, Kohl's, Office Depot and Lowe's, have cut back on the number of stores they intend to open this year. And others, including Sharper Image, Levitz and Linens 'n Things, have declared bankruptcy.
Gottschalks, which does about 80 percent of its sales in California, faces a more difficult economic environment than chains that aren't concentrated in the state, said Vaughn Miller, president of the retail division of Dallas-based Henry S. Miller Commercial.
That's because California has been hit particularly hard by the housing market downturn, which has sapped homeowners' wealth and led to rapidly rising foreclosure rates, he said.
Gottschalks has seen better performance from its stores in the Pacific Northwest, Fama-lette said.
But the company's problems can't be attributed entirely to its California locations, said Howard Davidowitz, chairman of New York-based retail consulting and investment banking firm Davidowitz & Associates Inc.
"If I was Gottschalks, I think I'd have to be in cash-conservation mode, because the business is burning cash," he said. "It's losing money, it's losing customers, it's losing market share."
In that light, holding back on expansion plans was a logical step, Davidowitz said.
"If the current stores you're operating are not performing, new stores won't help you," he said.
Still, Miller said Gottschalks has strengths that could help it weather the economic downturn.
"They have good locations, they pay low rents, their occupancy costs are typically lower than other retailers, and they're smart on their real estate decisions," he said. "Hopefully it will help them ride through what's happening in the economy."
Famalette said Gottschalks was in an "excellent position" to ride out the downturn and hoped to see the company open more of its smaller-format stores next year, if the economy recovers.
The first of its new format stores, a 58,000-square-foot store in Elk Grove, has performed well since its November opening, he said.
Gottschalks also is reviewing its real estate holdings, he said.
The company leases most of its stores, but owns six, as well as a 36 percent interest in its Fresno headquarters and a lease on its 420,000-square-foot distribution center in Madera.
Famalette said that while some of its real estate is partially pledged as collateral to a $200 million credit line Gottschalks secured in September from General Electric Capital Corp., the company still had the freedom to "do whatever we want with those assets," as long as it kept to the covenants it holds with its creditors regarding its real estate.