24/7 Wall St. regularly compiles a report of brands that are likely to disappear in the near-term. Last April, and again in December, we published our findings. Usually, it would take a full year before such a list could be compiled again. However, the current economic climate has accelerated this process and a majority of the brands on the first two lists are either gone, have been acquired, or have filed for bankruptcy. Last April, 24/7 Wall St. identified twelve brands that our analysis showed would disappear, including Saturn, Borders, Palm, AIG and Eddie Bauer.
We also accurately identified brands that would disappear in our December list.
The first brand on that list was Newsweek. The publication was founded in 1933. Parent firm, The Washington Post Company (NYSE: WPO), has given up on the magazine, which it has owned since 1961. None of the buyout offers made thus far seem to be serious. Closing magazines was in vogue during the depths of the recession. Newsweek has little chance of staying open.
Another brand on last year’s list was Palm. Its sales were so slow and its new mobile device, the Pre, sold so poorly that Hewlett-Packard (NYSE: HPQ) was able to buy Palm for next to nothing. The Palm brand is so badly damaged that HP is likely to keep the technology and kill the name.
Borders Group (NYSE: BGP), which was also on the December list, is still in business – barely. The company has closed most of its Waldenbooks stores, gone through serial layoffs and has now had two consecutive majority shareholders. It recently fired a number of the people in its UK operation. Borders is burdened with $300 million in debt, and its stock recently traded as low as $.35. The company is outmatched by larger and more successful competitors, Amazon.com and Barnes & Noble.
Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) were on our earlier list. We were wrong about them closing. They have become “wards of the state,” kept open by the US government to help maintain an orderly mortgage market. It is estimated that keeping the two firms open costs taxpayers about $7 billion a month. The companies lost a combined $291 billion in 2009. Members of Congress are pushing to have the companies shuttered. It is almost certain that they will not be around, at least in their current forms, much longer. One estimate is that the cost of supporting the two companies will total $1 trillion, making it more likely that they will be closed in the favor of other alternatives to maintain the mortgage market.
Another financial firm on our list, bond insurance firm Ambac (NYSE: ABK), warned last week that it may have to file for bankruptcy in the near-term. That news caused the stock to drop from a 52-week high of $3.39 to a $.51. Ambac’s stock traded at $96 three years ago.
Sun Microsystems failed so badly in its core server market that it was forced to downsize to the point where it was not a viable standalone company. It was sold to Oracle (NASDAQ: ORCL) for a fraction of what it was worth three years ago.
We also completely missed the mark on a few companies. They include Eastman Kodak, Motorola, and The GAP’s Old Navy brand.
With a number of the brands on the December list either gone or on a short-term path to extinction, 24/7 Wall St. has put together the latest version of the Ten Brands that Will Disappear. To qualify, we expect that brand to be gone by the end of 2011, or for its parent to be sold or go into Chapter 11.
Dollar Thrifty Automotive Group (NYSE: DTG), the car rental company, is for sale. Hertz (NYSE: HTZ) is a potential buyer as is Avis Budget (NYSE: CAR). Each of the larger car rental firms would use the Dollar Thrifty business to expand their market share. That does not mean that they would keep the brand. The current company is not much of a business. It made only $27 million last quarter on revenue of $348 million. It has more than $1.5 billion in “debt and other obligations.” The number of vehicles that Dollar Thrifty operates at any one time is only 95,000 compared to 420,000 for Hertz. The firm’s customer base and some of its locations may be valuable, but Dollar Thrifty can’t compete with Avis and Hertz. A decade ago, the car rental industry was able to support six independent brands. A significant drop in business and leisure travel and sharp competition among the companies has already caused the creation of Avis Budget. Dollar Thrifty will be the next casualty of the industry’s consolidation.
A merger with Sprint-Nextel has been mentioned several times. The combined company would have a customer base about the same size as AT&T or Verizon. And the transaction would probably make Deutsche Telekom a large owner of the combined operation. Another alternative would be a merger with Virgin Mobile. Virgin Mobil is smaller than T-Mobile, but the Virgin brand is very highly regarded and already extends across a large number of successful businesses. Virgin Group is involved in 200 businesses around the world. Another potential buyer of T-Mobile’s customer base is Telcel, which has 60 million subscribers in Mexico, is owned by billionaire Carlos Slim, who has already began to expand his business interests of the US. T-Mobile has little brand equity in the US. Maybe Deutsche Telekom will just change the firm’s name.
Moody’s Corp. (NYSE: MCO) may have the name with the largest negative brand equity in the US. Scandals about the company’s rating of mortgage-backed securities and allegations that the firm compromised it ratings process to get business have ruined the company’s image. Moody’s is more than 100 years old, but the reputation it built over those years is irretrievably lost. There is a chance Moody’s could be ruined by civil actions, four of which are pending, and by charges brought by the US government. Overseas authorities may bring a number of actions against the company as well. Moody’s activities are almost certainly to be more regulated, which will squeeze margins and hurt sales. Moody’s may end up selling its accounts to a new rating company, which would probably hire many of its employees. Pacific Investment Management Co. and other institutional investors have talked about taking on some if not all the roles that the current rating firms play. Research houses like Alliance Bernstein could also take on some of those rolls. Part of Moody’s operation may stay alive, but there is not much left to salvage in the brand.
Zale Corporation (NYSE: ZLC) was founded in 1924 by the Zale brothers. It was one of the earliest retailers to offer the ability to buy items on credit. By 1980, Zale had revenue of over $1 billion. In 1992, Zale filed for bankruptcy and by the end of that decade, its revenue was $1.3 billion – about the same as it is today. Zale has been at death’s door for some time. Its market value is down to $78 million. The company is trying to turn itself around, but most experts are not convinced. The company recently made the Forbes list for firms with extreme financial risk. In the last quarter, the retailer lost $12 million on revenue of $360 million. Zale is also in a very crowded market that includes retailers as large as Wal-Mart. Golden Gate Capital recently put money into Zale to buy it time. New money may defer the point at which Zale goes under, but it won’t prevent it.
Douglas A. McIntyre
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