Retail Losses Sap a Jobs Safety Net

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Circuit City Stores Inc.'s bankruptcy-court filing Monday underscores how this economic downturn may differ from others in recent memory: The U.S. retail sector is losing its place as the employer of last resort for the newly unemployed.

Circuit City, the country's second-largest electronics chain, had already announced it would cut 6,800 people as it conducts going-out-of-business sales at one-fifth of its outlets. On Monday, the company filed for Chapter 11 bankruptcy protection, and said that the number of job losses was likely to rise to 8,000.

Circuit City is the latest of at least 14 major retail chains, including Linens 'n Things and Mervyn's LLC, to file for bankruptcy protection in the past 12 months. Many, such as Linens, are discovering that they can't find financing and are liquidating, slashing tens of thousands of jobs. Fashion retailer Steve & Barry's entered Chapter 11 bankruptcy proceedings this summer with a plan to trim about 100 of its 276 stores; now, according to people familiar with the matter, the company is likely to liquidate the entire chain.

Roughly one of every 10 Americans is employed in the retail sector. But since November 2007, about a fourth of all jobs that have been lost -- about 320,000 in all -- have been in retail.

That has helped push the country's overall unemployment rate to 6.5% through October, a figure many economists expect to grow to 8% or higher. The unemployment figures don't include about 209,000 retail workers whose full-time hours have been reduced to part-time, according to the Department of Labor.

Retail employment has traditionally been relatively resilient in times of recession, with its job cuts often lagging behind those in other segments. The pace of layoffs and store closures was slower in the 2001 downturn than it is currently, because consumers in the earlier slowdown had continued to spend.

This time around, the sector's job losses have outstripped those of other troubled industries such as automotive manufacturing, financial services and hospitality, according to the latest government jobs data.

Retail experts believe many of the sector's biggest cuts are yet to come.

In a teleconference last week with financial institutions, the large liquidation firm Hilco Appraisal Services projected 6,100 U.S. stores -- ranging from mom-and-pops to outlets of big chains -- will close in 2008, up 25% from 2007. It estimated that figure could reach a record 14,000 stores next year. Each store typically employs 20 to 100 full- and part-time workers, say retail experts. That doesn't count the executives who manage the stores, buy merchandise and develop strategy at a corporate headquarters.

Ken Simon, managing director of financial advisory firm Loughlin Meghji + Co., says this downturn could be particularly hard for retailers because banks are reluctant to lend. "The credit freeze means a bankrupt retailer will have trouble finding financing to keep even a portion of their stores continuing," Mr. Simon said.

His firm found that at least 80,000 of the lost retail jobs were cut by retailers that had filed for bankruptcy. The rest were cut by healthier firms that are nonetheless shrinking.

More Competition

New York-based Lord & Taylor, for example, is trimming jobs ahead of what is expected to be a difficult holiday season. In the past few weeks, the department-store chain has eliminated 100 positions out of its 10,000-person work force -- representing 75 layoffs and 25 former executives who won't be replaced, says Jeffrey Sherman, chief executive of Hudson's Bay Co., which operates Lord & Taylor and other retailers in the U.S. and Canada.

The layoffs expose the thin economic safety net available for many Americans who have long depended on part-time or second retail jobs to make ends meet. Front-line retail jobs are among the primary sources of employment for those without a college education. For better-educated, full-time employees, retail jobs also filled a void left by the decline of U.S. manufacturers. Retail jobs could become more competitive still as unemployed workers with college degrees enter the market.

"In retail, you have large numbers of people who are at or slightly above poverty, so losing employment in that sector can increase poverty levels," said Ken Jacobs, chairman of the University of California at Berkeley Center for Labor Research and Education. "As manufacturing declined, these were the jobs where people could go."

Lauren Kerr, a 48-year-old single mother in Oakland, Calif., last month lost her job as senior creative manager in the marketing department at Mervyn's, a California department store that announced its liquidation last month. She has since found contract employment in a job that doesn't pay benefits.

"I'm a single parent. I don't have much of a savings cushion," Ms. Kerr said in an interview. She said she shops less for pricey organic and natural foods, and cooks at home more. She said her 10-year-old daughter Joana has also been more thrifty. "She will say, 'Well, we can't spend any money right now,' or, 'Mommy, I don't need my allowance,'" Ms. Kerr said.

Beyond the Balance Sheet

The present retail-bankruptcy filings differ from those that hit the department-store industry in the early 1990s. Back then, a previous buyout boom had placed large amounts of leverage on the stores' balance sheets. While retailers generally still had strong operations, many used bankruptcy proceedings as a way to get rid of expensive leases.

But retailers' current problems extend beyond their balance sheets. Not only is consumer spending plummeting, but manufacturers are clamping down on which retailers they will do business with and the terms under which they will ship products. Going into the holiday shopping season, many retailers have too much inventory.

Such is the case at Circuit City, with 721 U.S. stores. The company began layoffs last week, which means the cuts aren't yet reflected in the latest government jobs data.

Circuit City grew into a national powerhouse by acquiring regional stereo and appliance chains over the past half century, but it has been outflanked in the past decade by Richfield, Minn.-based Best Buy Co. Circuit City became the nation's No. 2 electronics chain by sales, with warehouse-size stores in high-visibility locations.

Service Backlash

Until early this decade, store-level jobs at Circuit City were considered some of the better retail jobs because they paid commissions. But about five years ago, the company phased out commission jobs. Last year it fired 3,400 of its better-paid retail employees, replacing them with less-experienced workers and suffering a backlash in customer service.

Last Friday alone, the consumer-electronics chain let go about 1,300 people, including more than 600 from its corporate offices in Virginia.

Jeff Wells, who was head of human resources of Circuit City Stores from 1996 to 2004, says the chain's out-of-work employees will have few places to turn. "There's not going to be any place for them to go. Everyone is cutting back," said Mr. Wells, now president of Human Capabilities, a consulting firm in Richmond, Va.

Christian Boccia, a district manager for Firedog departments in 29 Circuit City stores, learned Thursday morning that he'd lost his job. Firedog is Circuit City's technical-support business, which handles installation and support services on TVs, computers and other electronics.

The 29-year-old father of two in El Paso, Texas, had rejoined Circuit City two and half years ago, after he was let go in an earlier round of layoffs there. Mr. Boccia has worked in retail for most of his adult life. He has already put his résumé on Internet sites such as Monster.com and joined social-networking site LinkedIn. He says he'll relocate and is willing to "work in any field."

Mr. Boccia says he is getting paid until Jan. 9, but worries whether he will be able to pay bills after that. "I've got to support my family," said Mr. Boccia.

The worries are much the same for 40-year-old Michelle Priest, who worked in retail for 23 years, most recently as a regional recruiter for Linens 'n Things in Ann Arbor, Mich.

Ms. Priest just found out she lost her job, which ends officially in less than two months. Her husband, an electrician, lost his job seven weeks ago. Ms. Priest's mother, also unemployed, moved into their home to save money.

"I am very concerned about the whole situation," says Ms. Priest, who has two mortgages on her home. She already called her mortgage lenders, hoping they would allow her to skip a payment or let her change her rate. But both lenders told her they couldn't help her until she actually fell behind on payments.

"Retail has been the business that everybody falls back on when everything else fails," says Ms. Priest. "Now, it's not even there as a safety net anymore."

--Miguel Bustillo, Peter Lattman and Rachel Dodes contributed to this article.

Write to Jeffrey McCracken at jeff.mccracken@wsj.com, Vanessa O'Connell at vanessa.o'connell@wsj.com and Ray A. Smith at ray.smith@wsj.com