24/7 Wall St., a website that features opinions across a broad range of business and financial matters, released this week a new list of brands that will disappear, which includes Sears, American Apparel, Sony Pictures, Nokia, Saab, A&W, All-American Foods Restaurants, Soap Opera Digest, Sony Ericsson, MySpace, and Kellogg’s Corn Pops.
Commenting on Los-Angeles-based American Apparel, which only recently seemed on the brink of Chapter 11, 24/7 said: “The once-hip retailer reached the brink of bankruptcy earlier this year, and there is no indication that it has gained anything more than a little time with its latest financing.”
About Sears Holdings’ Sears brand stores, 27/7 said recently appointed CEO Lou D’Ambrosio “needs to pull a rabbit out of his hat soon” or else Sears domestic may be the next major retailer to shutter its doors.
24/7 compiled its brand “death list” each year, and in several cases, its predictions came true. On last year’s list was T-Mobile, which will soon be absorbed by AT&T and Deutsch Telekom. Another 2010 nominee, Blockbuster “bit the dust, while others, such as Dollar Thrifty are on the road to oblivion.”
Dov Charney’s Legal Troubles Don’t Help
Not all of its 2010 ill-fated brands met their exptected demise, however. 24/7 admitted: “We also missed the mark on a few companies. Notably, Kia, Moody’s, BP, and Zales appear to be doing better than we expected.”
Still, 24/7 added that the brand graveyard has been filling up with tombstones: “brands that have stood the test of time for decades are falling by the wayside at an alarming rate.”
To be included among “brands that will walk the blank” 24/7 cited its criteria: “(1) a rapid fall-off in sales and steep losses; (2) disclosures by the parent of the brand that it might go out of business; (3) rapidly rising costs that are extremely unlikely to be recouped through higher prices; (4) companies which are sold; (5) companies that go into bankruptcy; (6) firms that have lost the great majority of their customers; or (7) operations with rapidly withering market share.”
“Each of the ten brands on the list suffer from one or more of these problems. Each of the ten will be gone, based on our definitions, within 18 months,” 24/7 stated ominously.
Per American Apparel, despite a $14.9 million investment in April from a group of private Canadian investors that represents some 20.3% of outstanding stock, 27/7 forecasted: “That sum is not nearly enough to keep American Apparel from going the way of Borders. It is a small, under-funded player in a market with very large competitors with healthy balance sheets. It does not help matters that the company’s founder and CEO, Dov Charney, has been a defendant in several lawsuits filed by former employees alleging sexual harassment.
Zacks reported today that American Apparel “is one of today’s worst performing penny stocks, down 6.4% to $0.85 on 0.8x average daily volume.”
Moreover, investors may not be the only ones shying away from the specialty retailer. This week, Forbes reported its “Customer Loyalty Engagement Index” on apparel specialty retailers. “American Apparel no longer shows up, not making it to this year’s list. Since the list is predictive of customer behavior, this lack of fit in the customers’ consideration set does not bode well for the brand,” Forbes said. (Retailers that ranked high on the index included: 1. J. Crew, 2. Abercrombie & Fitch, 3. Victoria’s Secret, 4. H&M, 5. Aeropostal/PacSun, 6. GAP/Old Navy, 7. American Eagle Outfitters.)
Keep Kmart, Shutter Sears?
Echoing the advisories from many retail analysts in recent quarters, 24/7 believes Sears Holdings, parent to Sears and Kmart, “is in a lot of trouble,” calling the merger between 2005 merger between the two chains as having been “a disaster ever since.”
With Sears domestic business showing a 3.6% comparable stores decline last year, 24/7 stated:” Shares are down 55% during the last five years. D’Ambrosio’s only reasonable solution to the firm’s financial problems is to stop supporting two brands which compete with one another and larger rivals such as Walmart and Target.
“The cost to market two brands and maintain stores which overlap one another geographically must be in the hundreds of millions of dollars each year,” 24/7 said. “Employee and supply chain costs are also gigantic. The path D’Ambrosio is likely to take is to consolidate two brand into one–keeping the better performing Kmart and shuttering Sears.”
Coincidentally this week, Fitch Ratings downgraded Sears Holdings debt, saying it was worried about a “magnitude of decline in profitability and the lack of visibility to turn around operations.”
Sears Holdings also reportedly is looking to move its headquarters to another state, or possibly Washington, D.C., as the tax break it received as it Hoffmann Estates, Illinois, headquarters expires soon.