Brands that will disappear in 2016
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Each year, 24/7 Wall St. identifies 10 American brands that we predict will disappear, either through bankruptcies or because of mergers. Bankruptcies of large public companies in 2015 have already exceeded 2014 totals. Similarly, the total value of mergers and acquisitions is projected to hit a record high in 2015. While some of the companies on this list may disappear because they continue to be at the bottom of their industry, some may disappear because they are doing well.
Over the years, some of our predictions have been better than others. Some of our predictions — like Alaska Air — have been dead wrong. Other brands we said would disappear — like Aeropostale — have survived but are still failing companies. Blockbuster, DirecTV, American Apparel, and Sony Ericsson are among the brands that have gone bankrupt or have been acquired since appearing on our list. These brands have not yet disappeared completely, but may still in the near future. For this reason, this year we included some brands from previous years' lists.
It is often difficult to tell when a brand has truly failed, especially since a company may fail while its brand may live on. In an acquisition or merger, often the better known brand is chosen to represent the new company regardless of the company's financial position before the merger. In other cases, a company's operations cease entirely through bankruptcy, but its brand lives on after the liquidation.
Retail continues to be one of the sectors with several troubled brands that may have to be sold to survive, or as in the case of A&P, will not survive at all. The 24/7 Wall St. list includes American Apparel and Pacific Sunwear (NASDAQ: PSUN). These small niche companies with shaky financials try to compete with much larger retailers that have more stores, large marketing budgets, and strong balance sheets. Like most retailers, these companies also must contend with the growing dominance of Amazon.com and other e-retailers.
The list also contains companies with problems arising from devastating events. Ashley Madison and the VW's TDI brand fall into this category. One piece of news that exposed these brands, on a single day rippled around the world and almost instantaneously destroyed years of brand building.
The best example of how success can kill a brand is the US Airways merger with American Airlines (NASDAQ: AAL). American Airlines was still in bankruptcy during merger talks, while US Airways — one of American Airlines' creditors — was financially sound. However, management decided the American name was the better choice as the sole brand to survive the marriage.
Mergers have killed other brands on this list. Office Depot (NYSE: ODP) acquired OfficeMax, and now Staples (NASDAQ: SPLS) is close to taking over the company created by the combination. OfficeMax, the weaker of the three office brands will likely go away altogether.
Factors we considered as potential evidence of a brand's eventual disappearance include:
Declining sales and losses;
Disclosures by the parent of the brand that it might go out of business;
Rising costs that are unlikely to be recouped through higher prices;
Companies that are sold or merged;
Companies that go into bankruptcy; or from bankruptcy into liquidation
Companies that have lost the great majority of their customers; and
Operations with withering market share.
Each brand on the list suffers from one or more of these problems.
These are the brands that will disappear.
1. Smart
Mercedes Benz sold 5,432 smart models in the U.S. market over the first nine months of this year, down 32.8% from the same period last year. Exotic luxury brand Maserati sold more units than the brand of tiny cars, even though some Maseratis cost more than $200,000. Smart vehicles rarely cost more than $19,000.
Smart's greatest challenge — among the many it faces — is competition. Every major car manufacturer has a brand that competes with smart. Several of the best selling cars in the U.S. market are inexpensive, high mileage cars — reasonable alternatives to smart. The Nissan Versa, for example, which has sold more than 110,000 units in the United States so far this year, has a base price of $11,990 and gets around 36 mpg. Most of smart's competitors also have much larger marketing budgets.
Compact fuel efficient cars have been slow to catch on in the United States. With relatively relaxed gas taxes compared to Europe and falling oil prices — crude oil fell below $50 a barrel for the first time in over five years in early 2015 — there is even less incentive for Americans to favor light vehicles over the popular SUV.
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2. OfficeMax
The office supply retail business was hard hit following the evolution of computerized offices. Sales at the three large main U.S. players have been eroding for years and their brands struggling. None, however, was struggling as much as OfficeMax, the smaller of the three chains. The November 2013 merger of OfficeMax and Office Depot served to further dwindle the already disappearing brand presence of OfficeMax. With the proposed $6.3 billion merger of the new combined company with Staples — its only rival — it is highly unlikely the OfficeMax brand will make a comeback.
As many as 1,000 OfficeMax stores will be closed if the takeover is approved. The merger would create a near-monopoly in the U.S. office supply business, and the FTC will likely scrutinize the proposal far more than it did the OfficeMax-Office Depot merger. Many on Wall Street, however, anticipate the deal to be approved.
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3. American Apparel
Specialty clothing retailer American Apparel — one of the fastest growing U.S. companies only a decade ago — filed for Chapter 11 bankruptcy protection early this October. The company cited spiraling debt levels, plummeting sales, and a seemingly endless legal battle with ousted company founder Dov Charney as reasons for the filing — which has not been approved yet.
In the last quarter reported before American Apparel filed for bankruptcy protection, revenue dropped to $134 million from $162 million in the same quarter the year before. The company has just 130 stores in the United States, far fewer than its major competitors. Gap, for example, has more than 800 U.S. locations.
Shifting consumer preferences from logo-based stores to fast fashion chains such as Zara and H&M have hurt sales at American Apparel. Fast fashion retailers replace their supply much more quickly and tend to offer more affordable items than the clothing offered at American Apparel and its peers.
4. Pacific Sunwear of California
Also known as PacSun, retailer Pacific Sunwear of California reported fiscal 2015 revenue of $826.8 million, up from $797.8 million in 2014 and from $784.7 million in 2013. Growing income, however, has been a struggle. In the second quarter of this year, the company posted a considerable loss when non-cash gains were excluded.
PacSun's store count declined from 873 in January 2011 to 609 as of September 2015 in all 50 states and Puerto Rico. Even as the company's store count continues to decline, one of the most difficult problems Pacific Sunware faces remains its ratio of store locations to total revenue. Gap's yield per location is several times that of Pacific Sunwear. Looking ahead to the current quarter, the company expects same-store sales to drop between 3% and 6%, which would put further strain on the company's financials.
The retailer's stock has collapsed by nearly 90% over the six months since April. Its shares have been in the penny stock range for long enough that NASDAQ has sent the company a delisting notice. At $0.28 a share, Pacific Sunwear's financial condition has most of the hallmarks of an approaching bankruptcy.
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5. A&P
Dating back to the 1860s, The Great Atlantic & Pacific Tea Company, now known as A&P, first filed for Chapter 11 bankruptcy protection at the end of 2010. It again filed for bankruptcy in July of this year, but this time on its way to full liquidation — a century and a half after it was founded.
The company's troubles began decades ago as it failed to keep pace with changing trends in the grocery store industry. By 2000, new competitors, especially Walmart, further hurt the legendary chain, forcing it to further reduce its store count — from a peak of 16,000 — to just 600 locations. By the time the Great Recession rolled in, A&P was ill equipped to survive it.
The company laid off thousands of workers five years ago and closed numerous stores across the nation as a result of the most recent filing. AB Acquisition, also known as Albertsons Companies and one of the largest grocery chains in the nation, purchased the bulk of A&P's stores and reopened them under the ACME Markets brand.
Go to 24/7 Wall St. for the rest of the Top 10 well-known names on the list: