The next retailers to strike trouble?

The seemingly never-ending winter facing Australian retailers was interrupted very briefly last night to let in a bit of Spanish sun reflecting from the opening of the new Zara store in Melbourne.

The opening of the store – which comes a few months after the highly successful opening of the chain’s first Australian store in Sydney – shows that there is still some life in bricks and mortar retail, in the right circumstances.

Of course, how much life is a very vexed question right now.

Yesterday’s news that the receivers of the fashion group Colorado will close 140 stores and sack more than 1,000 people highlights just how deep the problems are in retail right now.

That the receivers of Borders and Colorado Group have failed to receive credible bids for what many would have considered to be iconic brands speaks volumes about how poor the outlook for retail is.

It appears neither group has been able to even find a buyer willing to snare a bargain at the bottom of the cycle.

But perhaps we shouldn’t be so surprised, based on what the receiver of Colorado Group, Brendan Richards, had to say yesterday about the state of the company.

“What the brand is today isn’t what it started out as. Colorado has been something of a directionless journey.”

It’s a shocking indictment of the company’s management. The comment suggests that some retailers who should have known better believed that the “sell it and they will come” environment that existed prior to the GFC would last forever and did little to adjust their business when the market changed.

The question now is which retailers might be next to run into trouble. It’s a tough question to answer, but perhaps we can look to the sharemarket for some hints.

According to a report in the Australian Financial Review, JB Hi-Fi and Billabong are the most shorted stocks on the ASX right now – investors “short” stocks by buying an option that will allow them to make money when the company’s share price falls.

Does this mean JB Hi-Fi and Billabong (which now owns 635 retail stores of its own, and is in 11,000 stores worldwide) are at any risk of collapse? Of course not. In fact, both have strong balance sheets, exceptionally strong brands and widely-respected management teams.

But both are facing a very difficult trading environment. Billabong warned in March that net profit for 2010-11 is likely to be 2-6% lower than the previous year, while JB downgraded its profit forecasts in March to $108.5-113.5 million, compared with $118.7 million in 2009-10.

The shorting simply underlines what the Colorado and Borders collapses are telling us – retail is likely to get worse before it gets better.