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Wednesday, February 20, 2008

Personal Finance QuickTake: Bankrupt Brands

Sharper Image and Lilian Vernon announced that they were declaring bankruptcy today according to USA Today. Hit by slower than anticipated Christmas Sales as well as a lackluster year both brands announced separately that they have filed.

The real question is, Is this a one-off issue with poor performing brands, or the start of something big? According to the report some are predicting that this is the beginning of an avalanche of bankruptcies by companies.

From the report:

"You'll see a record number of bankruptcies over the next 50, 100, and 1,000 days," said Burt 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."

The International Council of Shopping Centers projects 2008 store closings could reach 5,770 stores in 2008, the largest number of closings since 2004. Retailers as a whole reported their worst January same-store sales in almost four decades.

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.

What this means

As the Consumers go, goes the economy. The weaker die off first, but it is really the symptom of the larger issue that the economic boom of the last few years has been fueled by debt. Debt often obtained via Real Estate. That has dried up. Credit Cards are full. Where is the next wave of buying going to come from? And what happens if it doesn't.

What happens is, that we go into a recession. If we aren't prepared for it it will be twice as hard.


Master Your Card said...

Hi Racer, talk about worrying news. It seems as though the US consumer may have tapped out for the long term this time...

RacerX said...

First off - Welcome and thanks for visiting!

I think you are right. Out of areas to tap. The brands that aren't in good shape are really gonna struggle. Interesting that these two are on the opposite ends of what I think of customer-wise. Show that higher-end as well as entry customers are hurting!

Thanks for commenting. Come back anytime!

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