2 retailers enter Chapter 11
A weak holiday season and a struggling economy have led Sharper Image Corp. and Lillian Vernon Corp. to file for Bankruptcy Court protection, and analysts predict that others could soon follow them as retail 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 website, have long been plagued with falling sales. But retailers across the sector have been laying off staff and closing stores as people cut back on discretionary spending.
The International Council of Shopping Centers projects that store closures could reach 5,770 in 2008, the largest such number since 2004. Retailers as a whole reported their worst January same-store sales in almost four decades.
Flickinger said the problem was partly because of the increasing cost of food and fuel. Consumers who had been paying a dime of every dollar for food and fuel are now paying about twice that amount.
“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 Tuesday with the Bankruptcy Court in Wilmington, Del., Sharper Image Chief Financial Officer Rebecca L. Roedell said the company had experienced declining sales since 2004 and recorded net losses in fiscal 2005 to 2007, continuing into 2008.
She said the company was in a “severe liquidity crisis,” hurt by tougher competition, deteriorating gross margins, pending litigation and the volatile credit and financing markets, among other factors.
Sharper Image, which is based in San Francisco, 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 Chapter 11 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 shopping season, had experienced declining sales and rising costs over the last decade.
The privately held company, which is based in Virginia Beach, Va., is evaluating whether it is in the best interest of its stakeholders 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 crisis-management expert Ron Conway as its new chief executive.
In filing with the Securities and Exchange Commission on Tuesday, Sharper Image said it would pay Conway’s company, Conway, Del Genio, Gries & Co., $150,000 per month plus a percentage from any restructured debt or assets sold.
Sharper Image shares fell $1.03, or 71.5%, to 41 cents Wednesday, and hit an all-time low of 29 cents at one point during the day.
