Special Report

Ten Brands That Will Disappear in 2014

Each year, 24/7 Wall St. identifies 10 well-known brands sold in America that we predict will disappear before the end of 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, these two stand out. Both have suffered particularly 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 makes our list. It competes with better-selling products from larger companies — Apple and Amazon.com. The Nook 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.

The automobile industry also has two brands on our list. 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 and Mitsubishi and Volvo will follow soon.

Looking back on last year’s 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 criteria, within 13 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 recently reinstated CEO Myron Ullman can turn the company around.

On the other hand, many believe the company cannot come back from the unprecedented sales losses it has suffered in recent years. The retail 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 if the competition wasn’t so steep, a J.C. Penney comeback is not realistic. For the quarter ending November 2, comparable store sales dropped 4.8%, gross margins fell to 29.5% and the company reported a net loss of $489 million. Shares of JCP are down more than 50% on the year. This month, it was announced that the company would be removed from the S&P 500.

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. Tablet adoption forecast to grow 30% next year, while e-readers are expected to drop 27%.

The Nook was thrown a lifeline in April 2012 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 32.2% between the second fiscal quarter of 2013 and the second fiscal quarter of 2014. Digital sales declined by 21.1%. These declines may have cost Barnes & Noble CEO William Lynch his job. He resigned in July.

The Nook’s disadvantage may have little to do with its hardware or software and more to do with the size of Barnes & Noble’s 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 roughly 7.1 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 third quarter of this year, it saw publishing revenue drop from $27.6 million to $19.5 million, and a loss of $6.3 million. 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 min newsletter, these fell from 1,306 in 2008 to 766 last year. For 2013, pages are up 15% to 889 which is well short of what would have to happen to reverse years of losses

Although Omnimedia has a limited opportunity to retrench, it recently hired new CEO Dan Dienst to do just that. Unfortunately, one of Martha Stewart’s two other divisions — broadcasting — is disappearing. The division has seen revenue drop to under $300,000. The only healthy division is merchandising. And the future of this business will be hurt by the recent settlement between Martha Stewart and J.C. Penney.

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 it “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. Meanwhile, Groupon continues to eat into its customer base as it offers further discounts and drops fees.

5. Volvo

In the United States, Volvo was never a giant manufacturer with a large number of models or ultra high-end brands. In its most recent report, the company reported a net loss of roughly $118 million through the first half of the year. Through the first 10 months of the year, U.S. sales are down by 6.7%. The company’s models compete directly with mid-luxury offerings from every large auto company, 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. 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 U.S. Volvo’s model line is too small to allow it any chance. However, the company announced it would be introducing the new V60 Sportwagon in the U.S.

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 fell 18% in the two years following their peak in 2010, and the decline is 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 sales to fall from 5.1 million to 2.7 million units worldwide. 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 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 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 majority of WNBA teams are believed to have lost money each year, with the NBA subsidizing some of the losses,” the Chicago Sun Times reported in 2011. Attendance isn’t the only problem, as TV viewership is also very low.

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, but the T-Mobile-MetroPCS deal ruined that.

“After reporting net losses for the last six years, analysts are forecasting Leap will remain unprofitable through 2015,” Bloomberg BusinessWeek reported in October 2012. “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. In July, the company board of directors approved the sale of the company to AT&T. The sale now only needs to be approved by the government before it is finalized.

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 nosediving. In 2012, Mitsubishi sold fewer than 60,000 units in the U.S., down from nearly 80,000 in 2011. That decline was the biggest of any auto brand and has continued this year. In the first ten months of the year, sales have fallen by 0.7% to just under 50,000 vehicles. U.S. market share was only 0.4% in October.

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 its 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 21% to 550 for the first six months of this year, according to media research firm 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 magazines, each of which is in the midst of a sales slide. Since both 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.

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