Weighing the Economic News: Borders’ Bankruptcy

This week Econintersect had a major focus on retail sales data, punctuated with the failure of Borders.  It is always sad when a company goes into bankruptcy.  In the case of Borders, I was alerted by BankruptcyData.com:

Borders Group and affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, Manhattan, lead case number 11-10614.

There are many articles floating around on 200+ store closings, and renegotiating agreements – but following many bankruptcy cases over the years, when all is said and done the courts and the creditors will guide the course of events.

The retailing model itself is in a state of flux.  Each part of the retail spectrum remains under both growing competition and overhead compression.  For retailers, the brick and mortar business remains under attack from e-Retailers.

e-Retailers account for 7% of retail sales but 18% of the growth using US Census data.   Retailers that sell “pipe-line” products – non-proprietary items – are the most vulnerable to be run over by e-Retailers whose overhead advantage is cheap warehouses and highly automated business models.  No need for costly mall locations.

Many will not remember the tales of doom and gloom in the 60’s about the demon strip malls wiping out Main Street with their lower prices and FREE parking.  Overall, sales increased – what changed was who made the sale.  Books, magazines and newspaper made of paper are dying.  Business models using paper media must adapt.

Borders’ bankruptcy was not caused by free trade or high wages – they were trapped inside of an outdated model without enough room to maneuver.  Hopefully, Borders will be able to escape bankruptcy with an innovative new business plan.

But overall, little was lost to the economy in this bankruptcy.  After you get past the 6,000 jobs estimated to be lost by the St. Louis Examiner, everything else will just be diffused into the rest of the economy. Customers in Borders closed locations will simply buy somewhere else.  However, there will be another blow to the stomach for mall / CRE owners,  not only lost revenue caused by a loss of a major tenant, but also due to pressure from other tenants to renegotiate.  The effects will vary zip code to zip code.

There will be haircuts to investors and creditors.  No issues of Too Big Too Fail.  This is a normal Business 101 event – a corporate cycle from birth to death.

The bankruptcy crisis caused by the Great Recession is moderating.  Here is a bankruptcy scorecard (hat tip to BankruptcyData.com) updated through 13 February showing year-to-date stats on the number of public companies filing Chapter 11 or Chapter 7:

Year Filings 1/1 – 2/13 Assets* of Filings 1/1 – 2/13 Total Number of Filings
2000 22 $19,802 179
2001 27 $10,676 263
2002 34 $62,082 220
2003 24 $4,956 172
2004 17 $6,032 92
2005 14 $6,319 86
2006 8 $1,461 66
2007 10 $685 78
2008 10 $8,492 138
2009 30 $60,979 210
2010 16 $11,692 106
2011 9 $1,100

Bankruptcies provide for orderly death or rebirth.  I wish Borders and their employees the best.

Economic News this Week:

Econintersect’s economic forecast for February 2010 points to a slightly improving economy with all segments of its non-monetary index positive.  This week the Weekly Leading Index (WLI) from ECRI improved from a revised upward 4.6%  to 4.9%.  Although the overall level implies the business conditions six months from now will be approximately the same or slightly better then today.

Initial unemployment claims in this week’s release rose significantly again following last week’s drop.  This has been a real data yo-yo, and it remains important to follow the four week moving average for analysis of unemployment to smooth out the reporting idiosyncrasies.

The data released this week was positive and consistent with Econintersect’s January and February forecasts of slightly improving economic conditions overall.  The economy, similar to this period last year at this time – is gaining strength.

Weekly Economic Scorecard:

Item Headline Analysis
Consumer Metrics

Spending by Joe Sixpack continuing to weaken.
January Leading Economic Index
Up 0.1%
Index continues to have no real baseline but agree that economy six months from today will have improved.
February Philly Fed Business Survey
Increased to historically high range
The detail shows positive improvement but not much different then 2010 highs.
January Consumer Price Index
Up 1.6% YoY
Energy big contributor to this rise.
January Sea Container Counts
Up 13%
Indicates a growing trade gap.
January Producer Price Index
Up 3.6% YoY
Energy big contributor to this rise.
January Residential Construction
Down 10.4% MoM
Residential construction may be bottoming
January Industrial Production
Down 0.3%
Industrial Production is trending up even though it might be flat in January.
January Retail Sales
Up 7.8% YoY
After removing auto sales, this increase likely is inflation.
January Retail Sales
Up 0.3% MoM
Retail sales declining on a per capita basis
December Business Sales
Up 1.1%
Economic expansion seen in these numbers
February Empire State Manufacturing Survey
Up 3.5 points
Key elements less good but still shows expanding economy
Dollar’s Future

Base data shows dollar’s decline dynamics.
BRIC Decoupling?

Inflation is beginning to play a big role in international investing.
Asia Trade

Infrastructure limiting ability to expand in poorer Asian countries.
Opinion: Food Inflation in India

Sunil Chandra argues food price inflation is helping rural farmers.
Opinion: EU Stability

Dirk Ehnts argues EU at a cross roads – fighting inflation / stable Euro vs helping countries in distress
Opinion: FDIC

Yves Smith argues FDIC was designed to fail
Opinion: China & Spain

Michael Pettis argues China GDP growth will be high this year
Investing: Emerging Markets

Elliott Morss suggests where to put your money to hedge against emerging market risks
Investing: BRICS

Clive Corcoran points to money outflows from BRICS
Investing Summary

Jeff Miller reviews investing good, bad and the ugly.

Bankruptcies this Week: Seahawk Drilling, Borders Group, TerreStar Corporation

Failed Banks this Week:

Bankruptcy Almanac

Year-by-year comparison of number of public companies filing Chapter 11 or Chapter 7


Filings 1/1 – 2/13

Assets* of Filings 1/1 – 2/13

Total Number of Filings
















































* Assets in $mils

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