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Store Closings, Weak Sales Could Mean $27 Billion Boon For Competitors

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NEW YORK — Retailers left standing amid the carcasses of their competitors are going after orphaned customers. They're using aggressive mailers, accepting dead stores' gift cards and stocking the items that were once their rivals' best sellers.

"The retail market is just collapsing, and so the big opportunity for sales growth is trying to get customers from stores which have recently closed," said C. Britt Beemer, chairman of America's Research Group.

With reports coming Thursday that are expected to show year-over-year sales declines in February for the fifth straight month, retailers want any dollar they can scoop up in the hope of increasing their share of the shrunken market. But consumers may not cooperate.

Marisha Mistry, a "die-hard Linens 'N Things fan," said she and her mother started shopping at Bed Bath & Beyond when the Linens 'N Things near their home in Clifton, N.J., shuttered last year as the chain went out of business.

But after the economy tanked in September, they cut their spending and haven't returned to Bed Bath & Beyond since.

"We are rethinking our purchases," said Mistry, a 23-year-old publicist. "In the end, do we really need a pie pan in this economy? I just don't leisure shop at places like that anymore."

Even more ominous for retailers is that, even when the economy recovers, Mistry doubts she'll ever shop again with the gusto she used to display.

"Saving is more important than ever," Mistry said.

Nevertheless, Bill Dreher, an analyst at Deutsche Bank, has identified $9.6 billion of sales up for grabs from stores that are closing and potentially $17.8 billion more from weak stores. Those "up-for-grabs sales" include revenue now going to Sears, Roebuck and Co., Limited Brands Inc. and other companies that have been struggling with a steady slide in same-store sales.

"This will enable select retailers to emerge from this downturn in a significantly stronger position, and likely helps drive the performance of these stocks well before the overall consumer spending environment begins to improve," Dreher wrote in a recent report.

Among others circling the retail carrion, J.C. Penney is scrutinizing what sold best for now-defunct Mervyns LLC and Linens 'N Things, and while it's too early, the retailer reports it has been successful in recruiting many of the new customers.

Toys R Us took advantage of KB Toys' liquidation at Christmastime by giving customers who handed over a KB gift card 15 percent off one toy in January. Since December, Target Corp. has increased its marketing in major markets including e-mail campaigns and mailers, to chase new customers abandoned by the closing of their favorite stores.

For healthy merchants like Wal-Mart Stores Inc., the world's largest retailer, grabbing those new customers helps position themselves better for when the economy does recover. For the stragglers, it can mean survival.

"There may be less sales, but there are fewer competitors to share in those sales," said Candace Corlett, principal at consulting firm WSL Strategic Retail. "Stores are focusing on all those smart little tactics" to grab dollars.

Among the grim fourth-quarter results from retailers in recent days, the benefits from consolidation offered a silver lining.

"When the dust settles, we believe we'll be even stronger competitively," said Carol Meyrowitz, president and CEO of TJX Cos. Inc., which said quarterly profits fell 17 percent amid flat sales. "The retail landscape is consolidating. The consumers will have fewer places to shop."

Meyrowitz told investors last week that the company's HomeGoods stores that have been open at least a year and are near shuttered Linens 'N Things locations have seen "substantial" increases in sales. That comparison, also known as same-store sales, is considered a key measure of a retailer's fiscal health.

"I am feeling a lot better about our home business going into this year," Meyrowitz added.

Still, the deteriorating economy _ plummeting stock portfolios and massive job cuts _ could hurt stores' efforts.

The biggest retail casualty from the recession so far is Circuit City Stores Inc., which is winding down operations for what was once the nation's second-largest consumer electronics retailer.

Dreher says the biggest beneficiaries in consumer electronics, furniture and appliances should be Best Buy, Bed Bath & Beyond and Staples. In the general merchandise category, Wal-Mart, Target, Kohl's, Macy's and J.C. Penney should be the biggest market share gainers. Dreher estimates that Wal-Mart's share of the electronics and appliance market will rise to 38.7 percent from 25.8 percent.

Executives acknowledge that it's too early to know what the overall impact from store closings will be on their businesses. Nevertheless, many are hopeful.

Last month, Wal-Mart Vice Chairman Eduardo Castro-Wright said that the U.S. division's six merchandising units, from apparel to home furnishings, are performing better than the leading competitors in each area on a same-store basis.

Kohl's President and Chief Executive Kevin Mansell predicts a difficult 2009 but said the company plans to gain market share, partly by focusing on its low prices in marketing. Kohl's is opening 55 new stores, down from 75 last year but up from the 50 originally planned. The increase includes five former Mervyns locations the company has secured. Kohl's jointly acquired 46 Mervyns locations, along with retailer Forever 21, for about $6.25 million. Already, Kohl's stores near former Mervyns locations have seen upticks in sales.

Penney, along with stocking up on items once carried by its defunct competitors, is highlighting its trendiest labels in its advertising to try to lure shoppers away from ailing contemporary stores.

"J.C. Penney is expected to not only survive but come out stronger on the back end," Chairman and CEO's Mike Ullman III predicted.