Fallout Begins After Dismal Holiday Season

By Anne D'Innocenzio

The fallout from the horrific holiday season for retailers has begun, with the operator of an online toy seller filing for bankruptcy protection and more stores expected to do the same -- meaning more empty storefronts and fewer brands on store shelves.

This week Parent Co(KIDS Quote)., the operator of etoys.com, filed for Chapter 11 bankruptcy protection and said it will consider selling some or all of its operations. Chris Byrne, a New York-based toy consultant, said that etoys.com couldn't compete with the aggressive tactics embraced by Toys R Us and Wal-Mart Stores Inc., the nation's top two toy sellers.

A rash of store closings, which some experts predict will be the most in 35 years, is likely to cut across areas from electronics to apparel, shrinking the industry and leading to fewer niche players and suppliers.

The most dramatic pullback in consumer spending in decades could transform the retail landscape, as thousands of stores and whole malls close down. And analysts expect prolonged woes in the industry as the dramatic changes in shopping behavior could linger for another two or three years amid worries about the deteriorating economy and rising layoffs.

"You are going to see a substantial retrenchment in the retail industry," said Rick Chesley, partner in the global bankruptcy and restructuring group at international law firm Paul Hastings. "The downturn has been catastrophic."

A number of stores couldn't even make it to Christmas. Circuit City(CC Quote) Stores Inc. filed for bankruptcy protection last month. It plans to keep operating, but toy seller KB Toys, which filed for bankruptcy earlier this month, is liquidating its stores and will shut down.