Hmmm, I would probably agree with the Mits claim, but Volvo?!? Volvo?!?
by Douglas A. McIntyre
Each year, 24/7 Wall St. identifies 10 important brands sold in America
that we predict will disappear before 2014. This year’s list reflects
the brutally competitive nature of certain industries and the importance
of not falling behind in efficiency, innovation or financing.
The list also reflects how industry trends can accelerate the demise
of certain brands. This year, we included two magazines — Martha Stewart
Living and Road & Track. With print advertising in a multiyear
decline, some magazines have weathered the decline better than others.
These two, however, have suffered sharp drops in advertising revenue
over the past five years. Magazines also carry the heavy legacy costs of
printing, paper and distribution — a problem not shared by online-only
competition.
Consumer electronics is another category with disappearing brands.
The Barnes & Noble Nook is on the list. It competes with
better-selling products made by larger companies — Apple and Amazon.com —
and is also in the e-reader business, a shrinking industry. The Olympus
digital camera also will disappear from store shelves by the end of
2014. Camera sales, especially point-and-shoot models, have been eroded
by smartphones, which have increasingly high-quality cameras.
Yet another industry with two brands on our list is automobiles. Car
sales are growing in the United States, but brands with market shares
under half a percent cannot compete with companies that either produce
high-luxury models like Mercedes-Benz or multiline giants like General
Motors. Suzuki pulled out of the American market last year. Mitsubishi
and Volvo will follow soon.
Looking back on last year’s calls list, we have had some winners, and
some bad calls. Suzuki, MetroPCS and Current TV are all gone in the
United States. American Airlines is part of a new company through its
combination with U.S. Airways, though the American Airlines name lives
on. Talbots was acquired by a private equity firm less than two months
after we called it. Research In Motion is no longer a brand, having been
renamed BlackBerry. We bungled our predictions regarding Avon, the
Oakland Raiders and Salon.
We continue to use the same methodology in deciding which brands will disappear. The major criteria 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;
- Companies that go into bankruptcy;
- 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.
Each of the 10 will be gone, based on our definitions, within 18 months.
This is 24/7 Wall St.’s 10 brands that will disappear in 2014.
1. J.C. Penney
J.C. Penney Co. Inc. (
NYSE: JCP)
has been in trouble for some time. Those who still believe in its
future as an independent retailer point to the company’s ability to get a
loan of $2.25 billion from Goldman Sachs and other investors, secured
primarily by real estate and leases. That money, optimists claim, will
last until CEO Myron Ullman can turn the company around. Ullman recently
has returned to the company’s top job.
On the other hand, many believe the company cannot come back from the
unprecedented sales losses it has suffered in recent years. The
industry is very competitive, both at brick-and-mortar stores and
online. Big-box retailers from Walmart to Target and successful
department stores such as Macy’s are larger than J.C. Penney and are
growing. At the e-commerce level, companies such as Amazon.com and eBay,
are gobbling up market share. Amazon has done damage to retailers much
healthier than J.C. Penney.
Even in a less competitive environment, a J.C. Penney comeback could
not be sustained. For the year ended February 3, the company reported
that comparable store sales dropped 25.2%, revenue fell 24.8 % to
$12.985 billion and Internet sales were $1.02 billion, a plunge of 33%
from the previous year. While the most recent quarter was considered an
improvement with sales down 16.4%, in reality it was nothing more than a
brief reprieve. There is absolutely no reason to believe that J.C.
Penney’s prospects will improve.
2. Nook
Barnes & Noble Inc.’s (
NYSE: BKS)
e-reader was destined to struggle from the start. It was launched in
October 2009, roughly two years after Amazon.com’s Kindle, which was,
and has remained, the market leader. Both products were hit by
competition from Apple’s iPad before the e-reader business even hit its
stride. Adoption of tablets is forecast to grow 69.8% in 2013, while
e-readers are expected to drop 27%.
The Nook was thrown a lifeline a year ago, when Microsoft invested
$300 million in Barnes & Noble’s digital business, but to no avail.
It has been downhill since. Sales at the company’s Nook segment, which
includes both the e-reader and online books, declined by 26% between the
third quarter of 2012 and the third quarter of 2013. The Nook’s
disadvantage may have little to do with its hardware or software and
more to do with size of its online audience. It competes against much
larger e-commerce sites that have access to hundreds of millions of new
readers. While Amazon has more than 130 million visitors a month
according to Quantcast, Barnes & Noble has just over 6 million
visitors.
3. Martha Stewart Living Magazine
Martha Stewart Living Omnimedia Inc. (
NYSE: MSO)
has three divisions: publishing, broadcasting and merchandising. In the
five years up to the end of 2012, publishing revenue fell from $179.1
million to $122.5 million. Last year, the division lost $62 million. In
the first quarter of this year, publishing revenue dropped from $30.8
million to $24.5 million. The unit lost $990,000 in that period. Because
of its troubles, the company tried to sell off smaller magazines. Its
Everyday Food stopped publication as a standalone title with the
December 2012 issue. Whole Living was discontinued after the
January/February 2013 issue.
The main problem at the company’s flagship magazine, Martha Stewart
Living, is the precipitous drop in advertising pages. According to the
Media Industry Newsletter, the magazine’s advertising pages fell from
1,306 in 2008 to 766 last year. Pages are up to 404 through the first
half of the year, but even if the full year runs at this rate, it is not
enough. The company does have a good opportunity to retrench.
Two of Omnimedia divisions are doing quite well and could sustain a
restructured company. Merchandising had revenue of $11.5 million in the
first quarter, and an operating income of $5.7 million. Even the small
broadcasting operation made money. The company could move the magazine
online, as many other newspapers and magazines have done, to avoid the
huge costs of paper, printing, and adding new subscribers. Martha
Stewart Living lost its ability to be a standalone magazine long ago.
4. LivingSocial
LivingSocial, a daily deals website, has trailed Groupon since it
launched. But this is an industry in which trailing the leading company
is a very bad sign. As the financial troubles of Groupon demonstrate,
the online daily deal industry started to fall apart not long after it
began. Groupon’s share price, which reached a high of more than $26
after its initial public offering, was trading as low as $2.60 last
year. While the stock is up on improved sales, the company remains
unprofitable.
The situation is even worse for LivingSocial. Leading advertising
publication AdWeek recently reported that sources would not be surprised
if the company “was sold to a larger company or liquidated piece by
piece by spring 2014.” That is a long way from when Amazon.com
confidently invested $175 million in LivingSocial in 2010. The deal
soured as the huge e-commerce company wrote down the investment by $169
million in late 2012. More recently, an Amazon SEC filing indicated that
LivingSocial lost $50 million in the first quarter of this year,
compared to a profit of $156 million in the same period a year ago.
The biggest competitors to both LivingSocial and Groupon are eBay,
American Express and Amazon’s own AmazonLocal service. Each has a huge
customer base and significant amounts of data about its customers, which
they can use to target deals. LivingSocial does not stand a chance.
5. Volvo
In the United States, Volvo was never a giant manufacturer with a
large number of models or ultra high-end brands. As of April, its market
share in America had dropped to 0.3%
The company’s models compete directly with mid-luxury offerings from
every large auto company in the United States, including giants General
Motors and Toyota. It also has more direct competition from low-end
models made by BMW, Mercedes and Audi. With all that competition,
consumer demand just is not there for Volvo cars. In the first four
months of this year, Volvo sold 19,571 vehicles in the U.S., down 8% —
in an overall market in which sales rose almost 7% to 4,974,000. A
mid-market car company without a broad range of sedans, SUVs and light
trucks would find it hard to make any progress in the United States.
Volvo’s model line is too small to allow it any chance.
Volvo’s future is in question not just in the U.S. The company’s
dealerships in China inflated sales numbers to receive cash incentives
from the company that never went to customers, according to Brand
Channel. In other words, some of Volvo’s dealers committed fraud. China
has been the Swedish car maker’s home since Zhejiang Geely Holding
bought it in 2010.
6. Olympus
Except for market leaders like Canon, Sony and Nikon, no one wants to
be in the digital camera business anymore. Worldwide unit sales are
down 18% in 2012 since their peak in 2010 and are accelerating this
year. It is no surprise then that Olympus, which only has 7% market
share, has failed to generate a profit from its imaging business in any
of the past three years. The decline caught the company’s management off
guard. Actual sales were less than two-thirds of forecasts.
For the next fiscal year, the outlook is grim. Olympus expects
compact camera unit sales to fall from 5.1 million to 2.7 million units
worldwide. But these declines are hardly a new trend. A major reason for
declining sales has been the increased adoption of smartphones — which
now offer lenses and chips that capture high-quality images — as an
alternative to digital cameras. Based on increased interest in high-end
cameras, the company plans to focus on increasing sales of SLR cameras,
which accounted for just 35% of its imaging business. Meanwhile, sales
of its largest camera segment, compact cameras, will be cut in half. Of
concern to investors, the company has pledged to stop issuing dividends
until the camera business is restored to profitability.
7. WNBA
The champion and protector of the Women’s National Basketball
Association, David Stern, will retire in February 2014. He has been the
all-powerful commissioner of the NBA for three decades. It is hard to
imagine how the WNBA could have survived without his support, and that
will soon be gone. The league was founded in 1996, and currently has 12
teams. Six teams have disappeared since the league’s beginning, and
three have been relocated. Attendance has been awful. Average regular
season attendance by team per game was only 7,457 in 2012, compared to
about 18,000 for the NBA. The WNBA attendance number was below 6,000 in
Atlanta, Chicago and Tulsa. Even in New York City, the New York Liberty
could not break the 7,000 barrier. Attendance for half of the teams
dropped by double digits between 2011 and 2012. Owners have little
financial reason to support the league. The Chicago Sun Times reported
in 2011 that “The majority of WNBA teams are believed to have lost money
each year, with the NBA subsidizing some of the losses.” TV viewership
is so low it only makes matters worse.
8. Leap Wireless
Leap Wireless International Inc. (
NASDAQ: LEAP)
was the one loser in the recent telecommunications M&A frenzy.
AT&T nearly bought T-Mobile, which eventually combined with
MetroPCS. Sprint Nextel is being pursued by both Japan broadband firm
Softbank and Dish Network. Since the consolidations have created
financially stronger companies, Leap is too small to survive. The best
proof is in its subscriber counts and earnings. Wall Street lost
confidence in Leap a long time ago. Its shares are down 90% over the
past five years, while the Nasdaq is up by 40%. Leap’s management has
probably known it needs a partner for some time. It was widely expected
that Leap would merge with MetroPCS last year. The T-Mobile-MetroPCS
deal ruined that.
In October 2012, Bloomberg BusinessWeek reported, “After reporting
net losses for the last six years, analysts are forecasting Leap will
remain unprofitable through 2015, according to data and estimates
compiled by Bloomberg. It may post a profit of about $43 million in
2016, according to the average estimate.” The risk factors disclosed in
Leap’s annual report read like a road map to Chapter 11. Management
warns about the company’s ability to build out its 4G network, make debt
payments, take on more debt if needed and increase its customer base.
Probably the most damaging evidence regarding Leap’s dim future is its
subscriber count, which dropped from 5.9 million at the end of 2011 to
5.3 million at the end of last year. By comparison, the new T-Mobile
Metro PCS subscriber base is about 43 million, which in turn is smaller
than Sprint, Verizon Wireless and AT&T.
9. Mitsubishi Motors
While it never had a massive presence in the United States, the niche
Japanese automaker has had some success with models like the Lancer and
the Eclipse. However, Mitsubishi Motors will soon exit the U.S. market,
just as its Japanese rival, American Suzuki Motor Corp., did at the end
of last year. Its sales are nose diving. In 2012, Mitsubishi sold fewer
than 60,000 units in the United States, down from nearly 80,000 in
2011. That decline was the biggest of any auto brand and has continued
this year. In the first four months of the year, sales have fallen by
6.5% to just 20,571 vehicles. The U.S. market share of Mitsubishi was
only 0.3% in April. Mitsubishi does not have the advantages of some
other companies with low market shares — it is not a luxury car company
like Porsche and Land Rover, which sell high-end cars and command high
prices. The average price for Mitsubishi’s seven models is under
$25,000. One of the company’s weaknesses is this small model lineup.
Mitsubishi is further hampered by the public’s perception of its
products. In the new J.D. Power vehicle dependability survey, it ranked
third from last out of 33 brands.
10. Road & Track
Founded in 1947, Road & Track is the oldest and most
well-regarded automotive magazine in the country, according to Hearst,
the publication’s owner since 2011. Road & Track and its
better-selling stablemate, Car & Driver, have been among the top
brands in the industry for years. However, Road & Track operates in a
crowded market, which includes several other large publications and a
substantial number of popular car websites. The four dominant magazines
have all posted advertising sales drops in the past five years as Car
& Driver, Motor Trend and Automobile have each lost hundreds of ad
pages. Road & Track has had the worst of it. Ad pages fell from
1,092 in 2008 to 699 last year. Pages are down another 31% to 232 for
the first six months of this year, according to MIN. No large national
magazine can continue that kind of long-term slide.
Car & Driver has an audience of 10.7 million people, which
according to Hearst makes it the world’s largest automobile magazine
brand. Hearst does not need to support two magazine brands, each of
which is in the midst of a sales slide. Since both magazines are based
in Ann Arbor, Michigan, a consolidation of staffs would be a
money-saving option. Road & Track subscribers could also be migrated
to Car & Driver. Road & Track might continue to live online,
but Hearst has no reason to keep two similar titles.
Source;
http://247wallst.com/2013/05/23/ten-brands-that-will-disappear-in-2014/3/
