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.
Merrill Lynch may have been acquired, but that will not keep it safe. In fact, quite the opposite is true. Banks and other large financial services firms have a habit of buying large retail brokerage houses and then changing their names. Shearson is gone. So is EF Hutton and Prudential. In most cases the parent company wants to put their own names on the door. That is very likely to happen to Merrill Lynch, which was at one point the largest full-service broker in the US. Merrill is now owned by Bank of America Corporation, and the buyout spawned a number of scandals that kept Merrill’s name in the paper for weeks and did a great deal to harm its name with customers. Bank of America will follow a time honored tradition and Merrill Lynch will become B of A Investment Management.
Kia Motors Corporation is one of the two car brands of Hyundai of South Korea. It has always been a marginal brand. Its stable mate, Hyundai USA, has a reputation for high quality cars like the Sonata and Genesis. Kia sells “low rent” cars and SUV nameplates like the Sorento and Rio. As GM and Ford have already discovered, it is expensive to maintain multiple brands and storied car names, including Pontiac, Saturn, and Mercury, are disappearing. Most Kia cars sell for $14,000 to $25,000. Hyundai has several cars in the same price range (LINK). Hyundai’s Sonata has quickly become one of the best-selling cars in America, and its Genesis flagship model competes with mid-sized BMWs and Mercedes. The parent company will take a page from several other global car companies and dump its weakest brand.
Douglas A. McIntyre