Fallout Begins After Dismal Holiday Season

Among the most vulnerable are retailers that have debt coming due soon and had relied on solid holiday sales to generate cash, said Matthew Katz, managing director in the firm's retail performance improvement practice. But he said he's also watching merchants whose debt is not due until later in 2009 or 2010, but are paying big interest payments as they struggle with high debt loads and shrinking revenues.

Some of the retailers that analysts say they are watching carefully are struggling regional department store Bon-Ton Stores(BONT Quote)., of York, Pa., and apparel retailer Goody's Family Clothing, which filed for bankruptcy protection in June but emerged from Chapter 11 in October. Officials from Bon-Ton and Goody's did not immediately return calls seeking comment.

Retailers who do file for bankruptcy are also under more pressure now than in the past because of 2005 changes to the code that cut down the amount of time they have to file a complete reorganization plan, said Ken Simon, managing partner at Loughlin Meghji + Co., a restructuring advisory firm.

Another big problem for them, Simon said, will be securing additional financing to keep operating because of the tight credit markets.

The dire problems facing retailers also spell bigger problems for suppliers, which have already been seeing merchants cut or cancel orders.

Allan Ellinger, senior managing partner at New York-based MMG, an investment banking and strategic advisory practice, foresees a shakeout in the apparel industry and said those who survive are going to have a hard time meeting the financial needs of stores.