11 Household Names That Will Vanish by 2012
Editor's Note: This article was updated on 7/1/11.
At InvestingAnswers, we've profiled a number of controversial and informative topics, from collapsing companies to the five wealthiest members of Congress, and most recently, The 359 Safest Banks in America.
Today our focus is on brands.
Either victims of the lingering recession or the financial meltdown, a surprising number of longtime consumer favorites are no longer around.
Brands that have been lost in recent years include Gourmet magazine, Pontiac, Circuit City, Saturn, Kodak Kodachrome, Home Depot Expo, Woolworths, Washington Mutual, Bombay Co., Skybus, Aloha Airlines and Sharper Image.
Today, there remain a number of large companies facing uneasy futures. To qualify for our list, the brand must be on a fast-track to disappear by the end of 2011, either through bankruptcy, acquisition or from its parent company being sold.
Whether they're going under, being bought out, or simply getting a new face, we believe these 11 companies will have a hard time making it to 2012 unchanged.
Borders (Filed for bankruptcy on February 16, 2011)
Borders (NYSE: BGP) looked like it was out of the game at the end of 2008, when its share price hit $0.35, a historical low for the retailer.
In July of 2010, Borders finally released its Kobo e-Reader, nearly three years after Amazon (Nasdaq: AMZN) started selling its Kindle, and a year after Sony (NYSE: SNE) and Barnes & Noble (NYSE: BKS) released their e-Readers. Even though it was late to market, it looked like Borders had a shot at establishing itself as the no-frills discount e-retailer, pricing the Kobo at just $149. However, since its release, Sony, Amazon, and Barnes & Noble have given the Kobo e-Reader stiff competition with their own portable electronic reading devices.
Borders recently released the Kobo e-Reader Touch with more features and an attractive price tag of $129, but they'll have to join their competitors in luring consumers from their Apple iPads.
Howard Johnson is part of the mammoth Wyndham Worldwide Corp. (NYSE: WND), which owns 20 hotel brands ranging from budget to luxury. Howard Johnson sits right in the middle of that stratum. Originally a 600-store-strong restaurant chain in the 1960s, it's now known primarily as a hotel chain.
While there are some international locations, Howard Johnson is largely an American franchise targeting families and leisure travelers. Rising traveling costs and high unemployment have hurt this demographic and Howard Johnson has failed to target a more lucrative one: business travelers. The brand has been stagnant for the last decade, and it has not initiated any notable marketing campaign or worked to maintain a loyal customer base. The slow motion failure of Howard Johnson would simply mean that a great American classic -- but not a great American performer -- has run its course.
Editor's Update: Not much has changed with the Howard Johnson hotel chain in recent months.
MySpace (Sold for $35 million to Specific Media on June 29, 2011)
When Rupert Murdoch's News Corp. (Nasdaq: NWSA) bought MySpace in 2005, it looked like a genius move. Over the next few years, MySpace grew into the most popular social networking site in the U.S. In 2006, Google (Nasdaq: GOOG) paid News Corp $900 million to place search ads within MySpace pages.
But by April 2008, the spark had flickered, and dimmed. Facebook stepped into the light. And it's remained that way ever since. MySpace is currently ranked 25th in Internet traffic -- paltry in comparison to Facebook's #2 spot.
Editor's Update: On June 29th, 2011, MySpace was sold to the digital-media company Specific Media for $35 million, a fraction of the $580 million previous owner News Corp paid for the network.
Playgirl (Sold to Magna Publishing on April 25, 2011)
Times have been tough for the entire magazine industry -- classic publications like Gourmet, Modern Bride, Country Home, Vibe, and Blender all closed their doors in 2009. So it's not surprising that Playgirl, an X-rated magazine targeting women, would be among the wreckage.
Playgirl's publishers, the privately-owned Blue Horizon Media, decided to move the magazine solely online after declining sales made it impossible to continue in print. But the magazine has experienced a renaissance of sorts after convincing Levi Johnston, the father of Bristol Palin's baby, to pose for a special print issue in 2010.
So will Playgirl ultimately make it? The outlook's not so good. Even big publishing houses like Conde Nast and Hearst are have had a hard time keeping their earnings growth, and Playgirl is already over-exerting itself paying astronomical fees for celebrity photo shoots. Furthermore, the magazine's pay-per-view online business plan is falling short, as fewer and fewer people purchase subscriptions.
Editor's Update: The long time rival Magna Publishing acquired Blue Horizon Media's magazine title rights on April 25th, 2011. Playgirl, along with five other printed magazine brands are now published under Magna Publishing.
Acer (Company reorganized in March 2011)
This leading Taiwanese computer manufacturer is best-known in the U.S. for its highly portable, cost-effective laptops. When you buy an Acer, you won't get the user-friendliness or visual appeal of an Apple (Nasdaq: AAPL), but you will get an efficient device that still gets the job done.
In acquiring U.S.-based Gateway Inc. and releasing its own smartphone and tablet in 2010, Acer expanded its footprint in the U.S. Its attractive netbook pricing also proved popular for the company.
But further consolidation in the PC industry makes Acer a potential juicy acquisition for a struggling market giant, Dell (Nasdaq: DELL). Acer and Dell have a complementary market exposure, and Acer's strong foreign market presence could help Dell expand outside of the U.S. market. Furthermore, Acer's strong retail channels complement Dell's focus on direct-to-consumer channels. No stranger to game-changing acquisitions, Hewlett-Packard (NYSE: HPQ) should be considered a potential buyer as well.
Editor's Update: Acer's success from 2010 was short lived; the company's CEO Gianfranco Lanci resigned March 2011 as part of the company's plan to reorganize operation efforts.
Stiff competition from the Apple iPad along with other mobile internet devices forced the company to retool its operations and focus on more portable handheld computers. But they are still struggling to get their plans in motion. The company's tablet shipment expectations for 2011 were slashed, and it has reduced worldwide shipments of netbooks (its chief product) a whole 15% from 6.4 million to 5.4 million units.
Nearly a decade ago, the AOL Time Warner media merger was valued at well over $100 billion. Today, that mega-merger is considered the all-time biggest destroyer of shareholder wealth. In March 2011, AOL (NYSE: AOL) spent $315 million to acquire of the Huffington Post, one of the most heavily visited sites in the U.S. The investment has performed well in recent months, enjoying solid readership growth.
With that acquisition's proven success, did AOL turn itself into an interesting acquisition target? Pre-merger, AOL was expected to generate $2.3 billion in cash over 5 years. Now, with the successful addition of tens of millions of HuffPo subscribers, it could be a desireable target for a firm with deep pockets.
Not all that long ago, Microsoft (Nasdaq: MSFT) made a run at Yahoo! (Nasdaq: YHOO), a company valued at over $21 billion with a P/E ratio nearing 28. Why not scoop up a company valued at one-tenth of Yahoo!, with millions of AOL subscribers who can be transitioned to Microsoft's Hotmail service and Bing search engine? Plus, Microsoft would end up with the AOL homepage, which some analysts claim is worth $1 billion all on its own. Throw on the massive reader base of the Huffington Post Media Group as the cherry on top, and the deal looks pretty tempting.
Editor's Update: AOL continues to benefit from Huffington Post's record high reader-base and remains a promising acquisition opportunity.
RadioShack (Dropped from the S&P 500 in May 2011)
Whether you're looking for a hard-to-find battery or a remote that will control every on/off switch in your house, RadioShack (NYSE: RSH) purports to have it all. Unfortunately, the slump in the consumer electronics space has slashed demand for the store's peripheral products. The recession even forced RadioShack to ask the city of Fort Worth, Texas, site of its corporate headquarters, to relieve the firm of $10.76 million in tax liabilities in 2010.
There has been speculation that RadioShack hired Goldman Sachs (NYSE: GS) to explore buyout opportunities, and that Best Buy Co. (NYSE: BBY) may be an interested suitor. Look for this electronic accessory retailer to be gobbled up by a larger firm within the next year.
Editor's Update: While RadioShack's potential buyout still remains a rumor, the case for its demise remains strong. In May 2011, the CEO Julian Day stepped down after the company's fourth quarter results showed weak profit margins and increased markdowns on products. Also during that time, Sam's Club inherited the 400 RadioShack kiosks that operated in Sam's Club warehouses, further hurting revenues.
Trans World Entertainment Corp. (Nasdaq: TWMC), owner of the f.y.e. music store chain ("for your entertainment"), was just named by Forbes to a list of troubled retailers.
Trans World closed 157 f.y.e. stores during 2009 and 18 in the first quarter of 2010 alone. The stores' sales of physical CDs have plummeted and the company has operated at a loss since 2007. Bob Higgins, chairman and CEO of Trans World, has announced plans to close even more of the unprofitable stores, calling it "good business practice."
The company has been slashing prices, and now many CDs cost $9.99, the same price as a full-length digital album on Apple's (Nasdaq: AAPL) iTunes. But a return to profitability means convincing music buyers used to getting music online that they should come to the mall to sort through the racks of CDs like they did a generation ago.
Editor's Update: f.y.e. music stores have continued to face challenges. In the first quarter of 2011 alone, the company experienced a net loss of $2.5 million and has closed more than 100 additional stores since April 2010.
U.S. Cellular (NYSE: USM) is one of the country's largest wireless carrier, expecting to bring in $4.1 billion in operating revenue this year. However, smaller carriers are using lower prices to undercut U.S. Cellular while larger firms can offer better coverage and a wider array of mobile devices. U.S. Cellular currently finds itself in no man's land, and has been named a strong candidate for a leveraged buyout by Bank of America.
USM has never publicly expressed interest in being purchased, but according to Bank of America, current market conditions are ideal for weaker companies to be preyed upon by larger competitors. The company's solid customer base in 2010 included 6.1 million customers in 26 states makes the company a coveted target for a larger telecom player such as Verizon (NYSE: VZ) to swoop in and bolster its own market cap.
Editor's Update: U.S. Cellular has experienced a slight drop in customer base to 5.7 million since 2010, but still remains a promising acquisition opportunity.
Casual shoe sales surpassed sneaker sales during the last decade and Foot Locker (NYSE: FL) can no longer operate the massive sneaker super-centers it was once known for. It has already consolidated its Lady Foot Locker brand with the rest of its products as it continues to trim fat.
On January 8th 2010, Foot Locker announced it would be closing 177 stores and cut 120 executive-level positions, causing Moody's to reaffirm the junk status of a significant portion of Foot Looker's debt. Foot Locker's target consumer, the die-hard sneaker aficionado, is part of a younger consumer group experiencing high levels of unemployment.
Foot Locker's position in the highly competitive retail industry may not be enough to pull it through a slow-growth environment. We see this brand as a former retail giant on the way out.
Editor's Update: Foot Locker enjoyed a net income increase of $40 million from May 1, 2010 to April 30, 2011, but the retail industry as a whole remains sluggish.
Aluminum manufacturer Alcoa (NYSE: AA) operates in a tough environment. Prices for inputs (electricity, caustic soda) continue to go up, but prices for the final product (refined aluminum) continue to go down. Some of its largest competitors are Chinese and Russian firms that exist only because of gigantic state subsidies. Subsidized companies have no incentive to stop producing, so the world is awash in aluminum.
And to top it all off, Alcoa's debt load is as close to unsustainable as you can get. For example, from March 31, 2009 to March 31, 2010, Alcoa paid $474 million in interest alone. This means that more than 20% of their gross profit (Revenue - COGS) is going to debt service before considering any other costs of doing business. The high debt load could easily drive Alcoa into bankruptcy if low prices and high costs continue to put pressure on margins.
Editor's Update: Alcoa's annual interest payments have grown to $590 million in the fiscal year of 2011. Nearly 14% of its gross profit goes toward debt repayment before any other expenses are paid. To add to its pain, profit margins for Alcoa have been squeezed from 25% in 2007 to 21% in April 2011.