NEW YORK (AP) - A weak holiday season and a struggling economy led retailers
Sharper Image Corp. and Lillian Vernon Corp. to file for bankruptcy this week,
and analysts predict others could soon follow them as consumer spending worsens.
"You'll see a record number of bankruptcies over the next 50, 100, and 1,000
days," said Burt P. Flickinger III, managing director of the New York-based
retail consulting firm Strategic Resource Group. "Consumers are cash and credit
constrained. They're out of purchasing power."
Both Sharper Image, known for its high-tech novelty gadgets, and Lillian
Vernon, which sells low-cost gifts and gadgets through its catalog and Web site,
have long been plagued with falling sales.
But retailers across the sector have been laying off staff and closing
stores as consumers cut back on discretionary spending, faced with weak credit
and housing markets and high food and gas prices.
The International Council of Shopping Centers projects 2008 store closings
could reach 5,770 stores in 2008, the largest number of closings since 2004.
Even Wal-Mart Stores Inc., the world's largest retailer, reported sales in
stores open at least one year rose just 0.5 percent in January, missing analyst
expectations. Retailers as a whole reported their worst January same-store sales
in almost four decades.
Flickinger said the problem is partly food and fuel inflation. While
consumers used to pay 10 cents of every dollar for food and fuel, they now pay
up to 20 cents per dollar.
"Companies are contracting and collapsing," he said. "You'll see it in food
and drug, discount and department stores, as well as specialty stores and dollar
stores. Every major form of retailing."
In an affidavit filed with the U.S. Bankruptcy Court for the District of
Delaware on Tuesday, Sharper Image Chief Financial Officer Rebecca L. Roedell
said the company has experienced declining sales since 2004 and recorded net
losses in fiscal 2005 to 2007, continuing into 2008.
She said the company is in a "severe liquidity crisis," hurt by tougher
competition, deteriorating gross margins, pending litigation and the volatile
credit and financing markets, among other factors.
San Francisco-based Sharper Image plans to close 90 of its 184 stores as
soon as possible after it sells their inventories. It plans to continue to
conduct business as usual while it develops a reorganization plan.
Meanwhile, Lillian Vernon Chief Financial Officer Robert J. Eveleigh said in
an affidavit Wednesday that the company, which has a highly cyclical business
that peaks during the Christmas holidays, has experienced declining sales and
rising costs over the past decade.
"During the past holiday season expected sales growth did not occur, which
resulted in lower profitability and significant unsold inventory," Eveleigh
wrote. "These factors combined to significantly impair (Lillian Vernon's)
ability to find additional financing."
The company is evaluating whether it is in the best interest of its
shareholders to sell itself or liquidate.
Both companies had recently attempted management changes and other moves to
try and help results. Last week, Sharper Image named a crisis-management expert
as its new chief executive, while Lillian Vernon laid off half its year-round
work force.
Soleil Securities Group Inc. analyst Scott Tilghman said in a note to
investors on Wednesday that Sharper Image's filing was not a surprise, and he
discontinued coverage. "We find no reason for investors to be involved with
Sharper Image in the near term," he wrote.
Sharper Image shares lost $1.05, or 72.9 percent, to 39 cents, and hit an
all-time low of 29 cents at one point during the day.
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