Nau and Then--Retailers Hit A Rough Spot

Eco-friendly, Portland, Ore.-based apparel concept Nau (pronounced now) headed out of the stable like a thoroughbred set to gallop, developing a devoted customer following and registering sales that were impressive for a start-up--exceeding its first-year sales goal by 5 percent. But instead of a crown of flowers, Nau got trounced, not by its competitors or shoppers--but by the economy. After three successful rounds of financing (amounting to $35 million) to get things up and running and to quickly open five stores, as well as a successful online business, funds simply dried up. In the current economic climate, many businesses are discovering that the financial underwriters and institutions--even private-equity companies--that have usually been ready to fund retail expansions have slammed their doors shut--in some cases, they simply do not have the money. That’s what happened to Nau--and it could happen to a lot more stores. In this economic climate, financial lenders are simply not offering the support that retailers have long counted on. To put it bluntly, they have all but stopped granting loans, especially where any risk is involved.

Another ugly encounter took place recently, when The Mall of America in Minneapolis--trying to fund its $2 billion, 5.6-million-sq.-ft. expansion plan--got testy with local government officials who were holding back over proposed public subsidies and other financial support--some of it through taxes--needed to underwrite the project. One person involved in the brouhaha was quoted by online source PlainVanillaShell.com as saying, “Their bankers are saying it’s not feasible, it’s not bankable.” Another head-butt over funding.

Retailers have been closing underperforming stores at an accelerated rate in the past few months and retail bankruptcies are increasing in number. In an overbuilt retail landscape, this was probably inevitable. Circuit City is closing 100 stores; Linens 'N Things is closing 120, to name a few. (Some of those stores probably needed to go away anyway, and weaker retailers always find it difficult to weather an economic storm). Other retailers, including Wal-Mart, Starbucks and Home Depot, to name a few, are dramatically scaling back their expansion plans.

An online survey by GlobeSt.com indicates that 50 percent of retail respondents, however, are staying the course--focusing on “business as usual--for better or worse.” Business may become anything but usual, however, if sources of funding dry up. Of course, some few retailers fund their own expansion programs, but for those that depend on money from the financial community, it may be a bumpy ride.

--Diva

Comments

[George Whalin]

I disagree, Nau didn't get trounced by the economy. They got trounced by their own inability to leverage $35 million into a viable business. It is astonishing to me that anyone could put together than much in funding and couldn't build a healthy, successful retail business. They, quite obviously spent valuable financial resources on things that didn't help them build a business that could sustain itself through an economic downturn.