Fire sales add to U.S. retailers' holiday worries

Taut consumer spending and tough credit markets have dealt a hard blow to many companies, forcing some like home goods retailer Linens 'n Things and jewelers Friedman's Inc and Whitehall Jewelers Holdings Inc to seek bankruptcy protection.

Circuit City Stores Inc, the latest to be hurt by the global financial crisis and credit crunch, is shutting 155 U.S. stores, as it struggles to rejuvenate its business.

Together, the companies are selling several billion dollars worth of merchandise at fire-sale prices, on top of the deep markdowns and promotions offered by the wider retail sector.

Whitehall began its sales in August, while Circuit City stores slated for closing started on November 5. Most of the sales run through December 31, piling on pressure during a holiday season already expected to be one of the worst in about 20 years.

"Stores that are closing will have going-out-of-business sales, deep markdowns," said William Armstrong, an analyst with CL King & Associates. "As long as that lasts, that will have an impact on the other retailers in that area."

Such liquidations are likely to be an even bigger draw this year for shoppers, who are battling higher prices for food, a housing slump and job losses.

"Retailers have learned to stand aside when competitors are running 'going out of business' events," said Bernard Sosnick, a Gilford Securities analyst. "That's because nothing they will do will stop bargain hunters from rushing to (these) events."

Business at rivals suffers due to such sales, but mostly only on a short-term basis, analysts say. Healthier retailers will benefit in the long run, as they snap up customers from fallen competitors.

A top reason is that the good merchandise at liquidation sales is usually gone in the first few days.