(03-10) 08:12 PDT (AP) —

The signs that smaller retailers are struggling are unavoidable at malls across America: “Going out of business” sales at many Wilsons Leather stores. “Up to 70 percent off” at KB Toys.

At the once-sizzling Paradise Valley Mall in Phoenix, the space once occupied by Bombay Co., the furniture chain that went bankrupt last year, is empty. Wilsons just finished liquidating its inventory. KB Toys, AnnTaylor and American Eagle feature bold posters advertising steep discounts.

“I don’t think it brings much business when all these stores are closed,” said Michelle Green, a sales clerk at Fred Meyer Jewelers.

Around the country, mall centers are starting to feel the recoil from a rapid expansion in recent years that allowed retailers to aim stores at almost every niche, from shoppers who wanted Talbots clothes for their children to those who craved Bombay’s little wood tables.

Now, consumers who are closing their wallets amid rising gasoline prices and a housing slump are forcing specialty retailers to pare back their brands. While still healthy overall, mall centers in areas hardest hit by the housing downturn Д like Paradise Valley Д are suffering the most store shutdowns.

Retailers including AnnTaylor Stores Corp., Talbots Inc. and Pacific Sunwear of California Inc. have closed hundreds of stores so far this year. Gadget seller Sharper Image Corp. filed for bankruptcy protection last month and plans to shutter nearly half of its 184 stores.

That retrenchment, along with the Chapter 11 bankruptcy of catalog retailer Lillian Vernon Corp., marks the beginning of a wave of retail bankruptcies that’s expected to go well beyond the home furnishings stores hurt by the housing malaise.

“This is economic Darwinism,” said Dan Ansell, a partner at Greenberg Traurig LLP and chairman of its real estate operations division. “Those retailers and businesses that have a product that is desired by consumers will survive, and those who do not will not.”

Unless the economy dramatically improves, Ansell believes retail bankruptcies this year could reach the highest level since the 1991 recession. More closings could leave gaping holes in the nation’s retail centers, which have already seen average vacancy rates creep up to between 7 percent and 8 percent from 5 percent over the last six months, according to data from NAI Global, a commercial real estate services firm.

David Solomon, president and CEO of ReStore, NAI Global’s retail division, expects the vacancy rate could hit 10 percent by the end of the year. Suzanne Mulvee, senior economist at Property & Portfolio Research, figures that vacancies could rise as high as 12.5 percent this year. Her figure includes retail spaces where tenants have defaulted on their rents.

Part of the problem, according to Mulvee, is that more retail space is coming to the market just as consumer demand is falling. Another 130 million square feet of retail space will become available this year, she predicts, on top of last year’s 143 million. That is well above the average 100 million square feet added per year earlier in the decade.

As a result, markets like Phoenix, which had a retail boom, are expected to see the most dramatic increases in vacancies. Phoenix’s rate is expected to more than double to 10 percent by the end of 2009 from 4.4 percent late last year, according to Property & Portfolio. In Kansas City, Mo., rates could rise to almost 17 percent by the end of 2009 from last year’s 13.5 percent. In San Antonio, experts say the figure may hit 20.5 percent next year from last year’s 17.4 percent.

Still, Solomon doesn’t think the situation will be as dire as in 1991, when the savings and loan crisis hurt the entire country. Experts also say merchants are weathering downturns better because of new systems to control inventory and costs.

Nevertheless, consumers are seeing fewer stores that focus on specific niches, like apparel for women baby boomers or clothing for surf fans. That would differ from 17 years ago, when it was the department stores that felt the major shakeup as leveraged buyouts and fierce competition led to the demise of names like Carter Hawley Hale Stores and Woodward & Lothrop. But there’s one common theme: the power of national discounters like Wal-Mart Stores Inc., which helped seal the eventual demise of regional discount chains last time around. Now, the discounters’ clout is hurting consumer electronics stores like CompUSA, which is closing most of its stores, and Circuit City Stores Inc., which posted dismal holiday sales.

Christina Avila, shopping at the Oak Park Mall in Kansas City, Mo. Д which had more than half a dozen store vacancies Д said she’s cutting back because of the economy and spending more at places like Wal-Mart and Target.

“I’m more interested if they have clearance items,” she said.

Michele Lipovitch of Phoenix said she only goes to the Paradise Valley mall twice a month.

“We have two kids. I have credit card debt I’m trying to pay off,” said Lipovitch. “It’s kind of scary because we keep hearing that it looks like we’re going into a recession.”

The industry pullback follows several years of rapid expansion and experimentation with a range of new store formats as retailers enjoyed robust consumer spending fueled by rising home values. But the sharp spending drop has made stores rethink how to expand their businesses.

Jewelry retailer Zale Corp. announced more closings last month, meaning it now plans to shutter almost 5 percent of its stores by the end of July. In January, Pacific Sunwear said it will close all 154 remaining Demo stores, which sell urban fashions. AnnTaylor is shutting down 13 percent of its stores and delaying a new store concept aimed at women boomers, while Talbots is closing its 78 children’s and men’s apparel stores to focus on its core middle-aged female customer. Macy’s also has said it will close nine stores.

And Wilsons The Leather Expert is closing a majority of its 260 mall locations.

Analysts say they’re watching to see if Circuit City closes any stores after posting a third-quarter loss and cutting its full-year profit outlook. Analysts also expect more store cutbacks at Sears Holdings Corp., which operates Kmart and Sears stores.

Some shoppers are not going to miss the casualties.

“They have nice clothes, nice urban wear, but their prices (are) a little high,” said Tasha Burts, 35, of Demo at the Dolphin Mall west of downtown Miami. She walked out empty-handed.

Mall operators Taubman Centers Inc. and Simon Property Group say their top tenants Д the department stores and other big chains that anchor most shopping centers Д are in good financial shape.

Bill Taubman, chief operating officer of Taubman Centers, predicts more store closings and bankruptcies than last year, but doesn’t think they will reach historic highs.

That will still mean a more limited selection for consumers, who until a few months ago had a plethora of choices, particularly when it came to furniture. Recent home furnishings casualties included Bombay and Levitz Furniture, which filed for bankruptcy in November and has been liquidating its inventory. Clothing stores, in a malaise since consumers see fashion spending as discretionary, could see widespread closures this year.

While the industry overall is experimenting less with new formats, Janet Hoffman, managing partner of the North American retail division of Accenture, expects the mood to be temporary.

“There is this undying belief in the retail industry that they have an idea that will work,” Hoffman said, citing Abercrombie & Fitch Co.’s new lingerie chain Gilly Hicks. “A year or 18 months from now you will see new ones at play.”

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Associated Press Writers David Twiddy in Kansas City, Mo., Terry Tang in Phoenix and Laura Wides-Munoz in Miami contributed to this report.

It may seem odd that anybody would have a problem with pretesting an ad or marketing campaign. It’s hard to argue with the potentially money-saving (and mistake-preventing) insights research can provide. And in theory, pretesting makes total sense. The problem is that the science of advertising pretesting just isn’t there yet.

A few years back, Advertising Age ran a story about the uncertainties of ad testing. It cited Volkswagen’s («www.businessweek.com») popular 1997 “Da, Da, Da” Golf commercial, which some in Volkswagen management didn’t want produced. The article went on to say that a handful of Volkswagen commercials were evaluated using GM’s («www.businessweek.com») custom-designed pretesting system. According to the story, the successful VW commercials flunked under GM’s process. The Artificial World of Testing

Why can’t ad testing systems always predict real-world success? There are many reasons, but I believe they essentially boil down to this: It is impossible to replicate in a research situation how somebody will respond to an ad on a Sunday afternoon while sitting in their easy chair munching on nachos and watching the game.

When people are invited to participate in market research, whether it’s an online survey, a focus group, or even an in-home study, the circumstances will change the subjects’ behavior. They know they’re being watched, and they may even believe their job is to be critical. Respondents On the Hot Seat

Think about how a focus group works—people are invited in, fed a meal, and paid an incentive to offer insights and opinions that the sponsoring marketer can use. The pressure is on to contribute something of value. For someone to admit that they simply like an ad or to admit that it might influence them to buy something is rare. Instead, participants tend to understate how much they are affected by advertising and be overly critical of the ads themselves.

But the desire to contribute isn’t the only problem. Even if people in focus groups wanted to give an honest opinion, they may not be able to. People just aren’t able to articulate or even understand all the ways advertising affects them.

Marsha Lindsay, a graduate lecturer at the University of Wisconsin and a member of the executive committee of the American Association of Advertising Agencies, explains the problem this way: “Copy testing and other research based on explicit learning cannot accurately predict ads’ success because consumers can’t tell us ‘the truth’ about how ads affect them. That learning often lies buried in their subconscious.” The Shock of the New

Stanford psychologist Robert Zajonc suggests that the more people see the same thing, the more they like it—but that people often don’t initially like rare or unfamiliar things. Commenting on Zajonc’s research, Bruce Tait of Fallon Brand Consulting says, “If brands are to succeed, they need to be based on differentiated, unfamiliar brand strategies. Unfortunately, these are the exact same ideas that people initially dislike. That’s why quantitative testing of alternative positioning ideas will likely systematically kill the more original ideas, and people will prefer the ones that are closest to what they already know. The marketer using this type of test will unwittingly select the strategy that is less differentiated and eventually fail in the marketplace.”

By contrast, consider what the people behind some of the marketplace’s most successful—and beloved—advertising have to say. Scott Bedbury, the former worldwide advertising director at Nike («www.businessweek.com»), says, “We never pretested anything we did at Nike, none of the ads. [Dan] Wieden [the founder of and I had an agreement that as long as our hearts beat, we would never pretest a word of copy. It makes you dull. It makes you predictable.

NEW YORK: Fueled by a continuing weak dollar, crude oil futures surged above $107 Monday, a new inflation-adjusted record and their fifth new high in the last six sessions.

Light, sweet crude for April delivery rose $2.30 to $107.45 a barrel at midday on the New York Mercantile Exchange after earlier setting a new trading record of $107.

The dollar, which has driven the rally from $87 in January, remains a force in the market, though the U.S. currency firmed a bit Monday from lows hit at the end of last week.

Gasoline prices, meanwhile, were poised to set a new record at the pump, having surged to within half a cent of their record high of $3.227 a gallon, or 85 cents a liter.

The average price of a gallon of U.S. gas rose 0.7 cent overnight to $3.222 a gallon, 69 cents higher than one year ago, according to AAA and the Oil Price Information Service. Last May, prices peaked at $3.227 as surging demand and a string of refinery outages raised concerns about supplies.

That record will probably be left behind soon as gas prices accelerate toward levels that could approach $4 a gallon, though most analysts believe prices will peak below that psychologically significant mark. In its last forecast, released last month, the Energy Department said prices would probably peak around $3.40 a gallon this spring; a new forecast is due Tuesday.

There was little in oils price uncertainty to convince analysts that the huge run-up in oil prices had run its course.

“Weve got a Fed meeting on the 18th that could see a sizeable rate cut,” said Brad Samples, an analyst with Summit Energy Services, in Louisville, Kentucky. “So, its not over.”

Many analysts believe speculative investing attracted by the weak dollar is the primary reason why oil has risen so far so fast in recent months. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.

Indeed, while the dollar fluctuated against the euro on Monday, many investors believe the dollar is likely to keep falling as the Fed continues to cut rates. Many analysts believe the rise in crude prices is not supported by the markets underlying fundamentals, noting that supplies are generally rising while demand is falling.

Investors “are pushing food and fuel prices to ruinously high levels,” said Peter Beutel, president of the energy risk management firm Cameron Hanover, in a research note.

Investors shrugged off a weekend cooling of tensions in South America, where Venezuela said Sunday that it was restoring full diplomatic ties with Colombia after they were broken off following a cross-border Colombian attack on a leftist rebel camp in Ecuador.

Last week, rebels shut down a Colombian oil pipeline in retaliation for the Colombian raid into Ecuador. Venezuela threatened to slash trade and nationalize Colombian-owned businesses, and Venezuela and Ecuador briefly sent troops to their borders with Colombia.

The potential for conflict involving Venezuela, an OPEC member and major U.S. oil supplier, helped push oil higher last week.

“The Venezuelan production was at risk there,” Samples said.

Other energy futures were mixed Monday. April heating oil futures rose 2.05 cents to $2.9675 a gallon while April gasoline futures rose 0.37 cent to $2.698 a gallon.

April natural gas futures slid 2.6 cents to $9.743 per 1,000 cubic feet.

In London, Brent crude futures rose 95 cents to $103.33 a barrel on the ICE Futures exchange.