Success and Failure

Loehmann’s is filing for bankruptcy. Are the bad times coming back?

Probably not. While the 92-year old New York discount clothing chain is an icon in the Northeast, it has been a regular visitor to the bankruptcy court. They might even want to get a frequent-filer card. The firm filed Chapter 11twice before: in 1999 and 2010. It’s hard for small chains—Loehmann’s has just 39 stores—to keep up with behemoths like Target or TJX, which has 3200 stores. In addition, lots of retailers have struggled—like Sears, JC Penney, and Gap.

Indeed, some of these chains wouldn’t still be around if it hadn’t been for the Fed’s ultra-low interest rate policy. Rates have been so low for so long that these firms have been able to secure financing even though their sales have been flagging. Sears used to have a 3% market share as recently as 2005—now it’s down to less than 2%. But the firm was able to get a $1 billion loan in October to help restructure its business.

In addition, bankruptcy is a lagging indicator. It takes years for a company to run out of cash, and since management is frequently replaced in a reorganization when the equity is wiped out, it’s usually the last resort as debt-holders sue to get their money back. And the number of business and non-business filings has fallen every year since it peaked in 2009. It’ s now 20% below its high.

Bankruptcy is how the system tells a business that what it’s doing isn’t working. It’s how our economy evolves. Just because an iconic company goes down doesn’t mean we’re going backwards.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-12-17T11:41:55+00:00 December 17th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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