Just when you thought you knew what you could always expect in retail hot spots in "Generica," the restaurant and retail landscape seems to be shifting. The latest to go are restaurant chains Bennigan's and Steak & Ale, which have entered Chapter 7 bankruptcy.
This basically translates to "liquidation." Bennigan's and Steak & Ale will close down 300 restaurants, let go thousands of workers, and likely won't reopen, according to The Wall Street Journal.
Bennigan's and Steak & Ale weren't part of a publicly traded entity, but the event underlines these difficult times. It's been no secret that high gas prices have ruined consumers' appetite for eating out, and high food costs are obviously painful for restaurants. Falling sales and rising costs don't exactly spell good times, obviously.
No wonder restaurant stocks like Ruby Tuesday (NYSE:RT), Cheesecake Factory (NASDAQ:CAKE), and DineEquity (NYSE:DIN), which owns Applebee's and IHOP, haven't looked too appetizing to investors.
Furthermore, retail in general is in a tough spot these days. I'm sure you've heard of some other high-profile flameouts and bankruptcies lately, such as Linens 'n Things, Mervyn's (which was once owned by Target (NYSE:TGT)), and Sharper Image. Steve and Barry's recently gained attention for unraveling in fast motion. We'd all better steel ourselves for the idea that some weak retailers might get weeded out in the current slowdown. And, of course, the current environment gives us much more than academic theory to support why cash-rich companies are preferable.
After all, there was a good reason why investors flipped out earlier this year when retail turnaround hopeful Talbots (NYSE:TLB) lost a couple hundred million in credit from several banks. On the other hand, as much as investors have been spooked by American Eagle Outfitters (NYSE:AEO), note that it has a significant cash cushion to get it through rainy days.
I haven't set foot in a Bennigan's for years, so I guess I won't miss it; most shocking about this news is that it's yet another well-known name, and its demise from the consumer landscape seems sudden and shocking.
As scary as things seem, this, my friends, is capitalism. The bright side is that long-term investors who search for quality retail companies with great brands, smart management, room for growth, and little or no debt should be able to avoid disaster and find some amazing bargain stocks, despite the sector's difficulties.
