Stocks in the NewsFebruary 21, 2008, 12:01AM EST
The beleaguered
retailer has filed for bankruptcy court protection and will close nearly half
its stores nationwide
More than three years of losses
finally caught up to Sharper Image (
SHRP),
the gadgets retailer that saw its fortunes dip after a disastrous legal battle
involving the effectiveness of its signature air purifier.
As recently as last fall, Sharper
Image dismissed notions that it was headed for bankruptcy, despite the
rejection of a settlement in a consumers' suit over the air purifier and a
steep slide in its share price. "The only way we would go bankrupt is
if
we run out of money (BusinessWeek.com, 10/19/07)," Chairman
Jerry
Levin told
BusinessWeek in October. That's apparently what
happened.
Too many eggs in one basket
In its Chapter 11 filing, the San
Francisco-based retailer said it faced a "liquidity crisis" and that
its situation had been complicated by "the ever-tightening and volatile
credit financing markets." The comments from CFO
Rebecca
Roedell were filed with its petition late Feb. 19 in U.S. Bankruptcy Court
in Wilmington, Del. The company plans to close 90 of its 184 stores nationwide.
While the U.S.'s cloudy economic
outlook has played a role in weak sales for numerous retailers, some analysts
believe Sharper Image had unique troubles that contributed to its bankruptcy:
deep reliance on a single product for most of its history and high costs due to
expensive retail locations and catalog printing. "It's very much a Sharper
Image issue," says Scott Tilghman, a specialty retailer analyst at New
York-based
Hudson
Square Research. "I think it's your very small retailers that have
either some debt on the balance sheet or not enough cash to fund operations
(that) are really going to be put at risk."
Adds Jack Plunkett, CEO of a
Houston-based market-research firm,
Plunkett
Research: "Sharper Image is absolutely a discretionary store, the kind
of store that will find the cutback early in an economic situation like
this."
The company failed to transition
to a set of alternative products, as the one-time flagship product sales fell,
said Joan Storm, retail analyst at
Wedbush
Morgan Securities. The troubled product, the "Ionic Breeze Quadra air
cleaner," had seen negative reviews claiming the product was
"ineffective" by
Consumer Reports in 2002 and 2003.
Since then the company lost its lawsuit against Consumer Union, which endorsed
the reports, and a class action filed by consumer groups. Sales of the air
purifier tumbled. "Sharper Image has been relying too much on a single
product—an air purifying product that used to count for 35% of sales,"
Storm says.
Retail weakness
In October, a federal judge
rejected a settlement that would have given consumers $19 coupons to use at
Sharper Image stores, calling the deal inadequate.
Last week the company replaced
CEO Steven A. Lightman with
Robert
Conway, head of a crisis and turnaround advice firm. Sharper Image has seen
declining sales since 2004, and it recorded net losses in fiscal 2005 to 2007,
continuing into 2008. Its shares fell 71%, to finish at 41˘ on Feb. 20 on
Nasdaq, hitting an all-time low of 29˘ in intra-day trading.
Another retailer, privately held
Lillian
Vernon, which sells low-cost gifts and gadgets online and via catalog, also
filed for bankruptcy court protection this week in Delaware.
In 2007, 75 retail chains
announced a total of 4,603 store closings, down 3% from the previous year. Home
furnishing and home entertainment stores accounted for almost half of the 2007
closures, according to a recent research report from International Council of
Shopping Centers, a trade organization.
Eva Woo is a
reporter for BusinessWeek.com .
http://www.businessweek.com/investor/content/feb2008/pi20080220_224253.htm?chan=top+news_top+news+index_investing
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