U.S. Retail Pain Jumps Border

(Marina Strauss — Globe & Mail)

Early this fall, suitors were knocking on the door at Linens ‘N Things’ Canadian subsidiary. Business was steady, even five months after its U.S. parent had collapsed into bankruptcy protection.

Today, the company’s 40 Canadian stores are being liquidated and the home furnishings chain’s plight serves as a stark example of how quickly the domestic industry has fallen victim to the U.S.-led downturn.

It also bears witness to how subsidiary chains on this side of the border are finding themselves vulnerable to the current squeeze on credit and financing. As such, they could serve as an early warning system for the broader retail sector in a protracted recession.

“I think, unfortunately, their world is going to get a lot worse before it gets better,” said Jack F. Williams, the American Bankruptcy Institute’s resident scholar, of the outlook facing the retail sector on both sides of the border.

“Our two economies are becoming more and more interrelated,” said Mr. Williams.

“In many of these instances, the U.S. counterpart is in financial distress, whereas the Canadian affiliate is reasonably successful.”

“The bankruptcies here in the United States will probably expose [Canadian affiliates’] cash flow to a greater drain,” Mr. Williams said.

More retailers in Canada than ever before are owned by foreign - usually U.S. - players, and more of those owners are struggling in the global economic crisis.

“It appears that Canadian sales trends are rapidly moving to resemble U.S. trends,” Desjardins Securities retail analyst Keith Howlett told investors on Friday. Read more here.