Published June 21, 2012
| 24/7 Wall St.
Each year, 24/7 Wall St. identifies 10 important American brands that we predict are going to disappear within a year. This year’s list reflects the brutally competitive nature of certain industries and the reason why companies cannot afford to fall behind in efficiency, innovation or financing.
American Airlines will disappear in 2013 because of its inefficiency. It was the premier carrier in the United States for almost 30 years -- even surviving through periods during which most other carriers went bankrupt. However, it lost its critical advantage of scale when Northwest merged with Delta (NYSE: DAL) and Continental merged with United (NYSE: UAL). Within two years, American became a medium sized carrier.
Research in Motion (NASDAQ: RIMM) may be the best example of an innovative company that lost its edge. As a result, it will disappear in 2013. Five years ago, RIM was the only smartphone of any size and had almost the entire corporate market. But it made one mistake: it failed to adapt its technology for consumer use. In June 2007, Apple (NASDAQ: AAPL) launched the iPhone and the rest is history.
Pacific Sunwear (NASDAQ: PSUN) no longer has the capital to compete. The retailer will be gone by the end of 2013. In the company’s most recent 10-Q, it said one of its biggest risks was running low on capital and not meeting financial obligations.
Several other 2011 nominees are also no longer. Saab filed for bankruptcy only five months after 24/7 published last year’s predictions The car company has been sold yet again to an investment group called National Electric Vehicle Sweden (NEVS), probably for little more than car parts.
In Nov. 2011, Ericsson dumped its half of the Sony Ericsson mobile phone business, apparently aware of something that Sony has yet to realize -- the smartphone industry is owned by Apple and Google’s (NASDAQ: GOOG) Android-run phones. Similarly, Yum Brands! (NYSE: YUM) dumped A&W as sales were miniscule compared to flagship brands KFC and Taco Bell.
A few of the companies we said would vanish are still operating -- barely. American Apparel is now a penny stock. Nokia is another company 24/7 still predicts will go away soon. The former Finnish heavyweight just fired 10,000 employees, or 20% of its workforce.
We also made a few bad calls. Sears and Sony Pictures are still operating in essentially the same form they were a year ago. Kellogg’s Corn Pops and Soap Opera Digest are doing just fine.
This year’s 10 Brands That Will Disappear continues to take a methodical approach in deciding which brands will be on the list. The major criteria are: (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 that are sold; (5) companies that go into bankruptcy; (6) companies that have lost the great majority of their customers; or (7) operations with rapidly withering market share. Each of the 10 brands on the list suffers from one or more of these problems. Each of the 10 will be gone, based on our definitions, within 18 months.
This is 24/7 Wall St. ten brands that will disappear in 2013.
It would be hard to find another large American company as bad off as Avon Products (NYSE: AVP). Avon’s long time CEO Andrea Jung was ousted late last year after nearly wrecking the company. Avon’s new CEO, Sherilyn S. McCoy, formerly of Johnson & Johnson (NYSE: JNJ), joined the company in April. She has has not run a public corporation let alone one in big trouble. The SEC’s examination of Avon’s communications with securities analysts has already cost CFO Charles Cramb his job. Avon is also under scrutiny for whether its Chinese operations meet compliance standards under the Foreign Corrupt Practices Act. One of Avon’s core problems is that the beauty market is highly competitive, yet management has not been able to concentrate on its core business. As Morningstar analyst Erin Lash recently wrote, "Despite restructuring initiatives that have cost the firm nearly $800 million through fiscal 2011, it appears to us that Avon is constantly putting out fires rather than proactively moving forward." There is a great deal to fix. Avon announced disastrous earnings in the last quarter, and has forecast things will get worse. Avon, however, is fortunate that it may have a suitor. In May, perfume company Coty offered $24.75 a share for Avon, which was nearly 20% above Avon’s stock price at the time. Coty had the financial backing of, among others, Warren Buffett. Avon dragged its feet and Coty withdrew its offer. But Coty, another consumer products firm, or a private equity house will be back. Since the Coty offer was withdrawn, Avon’s shares have dropped below $16. That price is down from $43 four years ago. The market has no confidence in Avon, but with its brand and revenue it is an ideal takeover target.
This tiny carrier has lost any chance it may have had to compete with larger carriers T-Mobile, AT&T (NYSE: T), Verizon NYSE: VZ), and Sprint-Nextel (NYSE: S) Investors have abandoned the company, depressing its shares down from a 52-week high of $17.84 to $5.86 -- very near its period low. Competition with the larger companies has begun to take a significant toll. The AP recently reported that “MetroPCS Communications Inc. says it gained a net 131,654 subscribers in the quarter, the worst result in years for the first quarter, which is normally the company's strongest. It ended the quarter with 9.5 million customers.” The carrier’s first quarter earnings were so weak that a number of securities analysts downgraded its shares. MetroPCS is often mentioned as a takeover target. In May, several Wall Street analysts said that the company was in buyout talks with T-Mobile, which is owned by giant European telecommunication company, Deutsche Telekom. This immediately give MetroPCS (NYSE: PCS) stock a push higher. Later in the same month, MetroPCS shares rose again as the CEO of Sprint-Nextel said he expects consolidation in the cellular carrier market. Sprint and T-Mobile both continue to struggle because of their modest subscriber bases compared to AT&T and Verizon. Each needs more customers. And while MetroPCS is too small to survive on its own, its buyout would give either the additional customer critical mass it needs.
8. The Oakland Raiders
The Raiders will play in the NFL next year. They just won’t play in Oakland. The team, founded in 1960, was one of the original members of the AFL and joined the NFL when the league merged in 1970. The Raiders won the Super Bowl in 1976, 1980, and 1983. The team’s track record has been poor over the last decade. The Raiders have left Oakland once before when the franchise worked out a better stadium deal in Los Angeles from 1983 to 1994. Oakland lured the team back with an agreement to add $220 million in improvements to the stadium where the team would play. One of the reasons the team will leave Oakland again is the financial plans of the new owners. Al Davis had controlling ownership of the team from the 1960s until he died last year. His heirs and several smaller shareholders now control the team. Current team managing owner Mike Davis has already said he may move the the Raiders back to LA to get a better stadium deal. The current Oakland stadium contract expires next year. David recently told the San Francisco Chronicle, "Yeah, Los Angeles is a possibility. Wherever's a possibility. We need a stadium." The Raiders could also move to Santa Clara, where they would share a stadium with the San Francisco 49ers, much as the New York Jets and Giants do.
Launched in 1995, Salon.com is one of the pioneering news and commentary sites on the web. In recent years, it has been eclipsed by larger and better financed sites such as The Atlantic and Washington Post-owned Slate. Of course, today there are thousands of websites that comment on the news each day. Some of these, like The Blaze, which is owned by Glenn Beck, are well funded. In a sign that Salon is very close to being shuttered, the company “lost” its CEO and CFO recently. Chief technology officer, Cynthia Jeffers, was put in charge. But Salon would need a great deal more than new management. At the end of the last quarter of 2011, Salon had $149,000 in the bank against short term liabilities, including $12.7 million worth in loans. During the same quarter, Salon lost $997,000 on revenue of $1.03 million. Rumors are that John Warnock, the co-founder of Adobe Systems, and investment banker Bill Hambrecht fund the company. But as it falls apart at the seams, more money is not likely to be forthcoming.
American Suzuki Motor sold 10,695 cars and light trucks in the first five months of this year. That was down 3.9% compared with the same period in 2011. The sales gave the manufacturer a U.S. market share of just 0.2%. One of the reasons the company has trouble moving its vehicles is due to the poor reputation of its cars. In the 2012 J.D. Power survey of U.S. vehicle dependability, Suzuki’s scores in power-trains, body and materials, and features and accessories were below those of almost every other brand. One sign Suzuki is having trouble selling its vehicles is that it currently offers a very aggressive zero percent financing package for 72 months on all of its 2012 cars, trucks and SUVs. Even with aggressive sales tactics, Suzuki cannot improve its position in the American market. Most of its cars sell for less than $20,000 and its trucks and SUVs for under $25,000. This end of the market is one that almost every other manufacturer with a broad range of vehicles has flooded with cheap, fuel efficient models. And, arguably the most successful car company in the U.S. based on growth -- Hyundai -- does particularly well in this segment.
5. Pacific Sunwear
Pacific Sunwear built its reputation on offering “California-style” accessories, primarily sunglasses, shoes, and swimwear. The company was started in a surf shop in Newport Beach in 1980. Recently, highly regarded corporate balance sheet and earnings research firm GMI Ratings put Pacific Sunwear of California on its list of companies at risk of going bankrupt. The results of that analysis should come as no surprise. Five years ago, the company’s stock traded for $23. Recently, it dropped to $1.50. In its last reported quarter, Pacific Sunwear lost $15 million on revenue of $174 million. The retailer’s cash and cash equivalents dropped to $22 million from $50 million at the end of the immediately previous quarter. Pacific Sunwear management said the company would have a non-GAAP net loss in the current quarter as well. Pacific Sunwear also disclosed it had a new line of credit with Wells Fargo. Its comments about the loan in its latest 10-Q were telling, “if we were to experience same-store sales declines similar to those which occurred in fiscal 2010 and 2009, we may be required to access most, if not all, of the New Credit Facility and potentially require other sources of financing to fund our operations, which might not be available.” Why is the company in so much trouble? It is too small and is in a commoditized business. Nearly every major department store chain sells products similar to the ones that Pacific Sunwear does, and so do a large number of niche retailers. Pacific Sunwear, meanwhile, has only 729 small stores. What will happen to the retailer? It could be bought by a larger company -- its market cap is only $108 million -- or it may go out of business with its inventory sold to other retailers.