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 of San Francisco, known for its high-tech novelty gadgets, and Lillian Vernon of White Plains, N.Y., 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.
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."
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.
Sharper Image Corp. and Lillian Vernon Corp. this week became the latest retailers to declare bankruptcy in an increasingly stark retail environment. Some other retailers that have filed bankruptcy over the past several months:
- Electronics retailer Tweeter Home Entertainment Group of Canton, Mass., based filed bankruptcy in June. It was acquired by Schultze Asset Management LLC, which continues to operate the company.
- Home furnishings retailer the Bombay Co. of Fort Worth, Texas, declared bankruptcy in September and shuttered the last of its stores in January.
- New York-based Levitz Furniture filed for bankruptcy in November. The company has since been liquidating its inventory.
- Harvey Electronics Inc. of Lyndhurst, N.J., a high-end audio-video retailer, filed for bankruptcy protection in December.