The economic death just keeps spreading. After hitting the financial industry, the housing industry and the car industry, the retail industry could very well collapse in the coming months. Following a dismal holiday shopping season and riding the coattails of highly publicized bankruptcies at Linen’s ‘N Things, Circuit City and KB Toys, as many as 25% of retailers may file for Chapter 11 protection in the first quarter of 2009.

In comparison, only 4-7% of retailers were expected to file for bankruptcy protection this time last year. Retail has long had the reputation of being one of the hardest businesses around, and the industry normally operates with many firms on the verge of bankruptcy. The current numbers, however, are unprecedented.

The Wall Street Journal reports that the first retailer to go under during the post-holiday season could be Goody’s Family Clothing, Inc., an apparel retailer in the Southeast with 287 stores. The company emerged from bankruptcy court in October, had a weaker than expected holiday season and may be seeking outside financing or loans. Goody’s is reportedly trying to avoid a potential liquidation by seeking outside help.

Goody's Family Clothing May Be Forced To File For Bankruptcy Protection
Goody's Family Clothing May Be Forced To File For Bankruptcy Protection

Many retailers that do not liquidate will likely trim inventory and cut suppliers, causing a ripple effect to other industries. Weaker manufacturers, small brands and cash-strapped fashion labels may fail even if the retailers themselves do not.

“We will have a lot fewer stores by the middle of 2009,” Nancy Koehn, professor of business administration at Harvard Business School, told the Wall Street Journal. “It’s happening very, very quickly because of the financial crisis and the recession.”