Cash-rich retailers stand to gain in credit crunch

By Kristina Cooke - Analysis

NEW YORK (Reuters) - The global credit crisis has been hard on retailers, but those with strong cash positions stand to benefit if their more indebted rivals are forced to shut down stores.

Companies with a lot of debt on their balance sheets could face increasing difficulty getting access to funds to expand or simply maintain their operations, which would enable rivals with stronger balance sheets like Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research) and Home Depot Inc (HD.N: Quote, Profile, Research) to scoop up market share.

A case in point: Last week, book retailer Borders Group Inc (BGP.N: Quote, Profile, Research) said it might put itself up for sale -- with bigger rival Barnes & Noble Inc (BKS.N: Quote, Profile, Research) one of the potential buyers.

Also last week, CIT Group Inc (CIT.N: Quote, Profile, Research), the largest player in factoring services -- an arrangement in which a company uses money owed by customers as collateral-- had to draw down all of its $7.3 billion in bank lines to fund itself.

Without factoring, many suppliers may not ship to less creditworthy or smaller retailers, further underscoring the importance of a strong balance sheet in the current environment, Credit Suisse analyst Gary Balter wrote in a note to clients.

"Companies like Wal-Mart or Home Depot have strong balance sheets and can weather the storm. So, as the weaker contenders close stores, they'll be in a good position to grab that market share and increase their brand awareness," said Fred Dickson, director of retail research at D.A. Davidson & Co.

Cash-rich retailers got off to a stronger start this year than their more leveraged competitors. Wal-Mart shares have risen more than 11 percent, Home Depot and Bed Bath & Beyond Inc (BBBY.O: Quote, Profile, Research) have climbed more than 5 percent, and Lowe's Cos Inc (LOW.N: Quote, Profile, Research) is up 4 percent.

Meanwhile, the more indebted Macy's Inc (M.N: Quote, Profile, Research) has fallen more than 7 percent and Dillard's Inc (DDS.N: Quote, Profile, Research) is down more than 5 percent. Among highly leveraged smaller companies, building supply retailer Building Materials Holding Corp (BLG.N: Quote, Profile, Research) is down 19 percent and apparel maker Rocky Brands Inc (RCKY.O: Quote, Profile, Research) is off 8.5 percent.