The recession has already claimed a number of high-profile retailers as victims. Since 2008, Circuit City, Filene's Basement, Eddie Bauer, Crabtree & Evelyn, Ritz Camera and many others, large and small, have all reorganized or liquidated. Unfortunately, this list is likely to keep growing: even though the economy has begun to recover, ongoing uncertainty and high unemployment are keeping the brakes on consumer spending.
The damage isn't limited to one region or certain retailing categories. Among the 10 retailers that Forbes.com and accounting firm Audit Integrity have identified as at risk are well-known names operating in a range of verticals: drugstores (Rite Aid); supermarkets (Great Atlantic & Pacific Tea, controller of A&P, Food Emporium and Pathmark); apparel (Liz Claiborne); bookstores (Borders); department stores (Bon-Ton Stores); cosmetics (Perfumania) and luxury (Zales Jewelers).
Audit Integrity screens more than 2,000 of the larges publicly traded U.S. companies for signs of financial trouble, using a risk model that incorporates the usual factors (credit ratings, balance sheet strength and earnings). It also figures in a measure of "accounting and governance" quality, with the idea that such historical data can help predict those firms that are likely to undergo financial restatements, regulatory issues, class actions or severe financial distress. While a number of retailers are among the businesses rated the riskiest by Audit Integrity, the firm acknowledges that chances are small that any one company will be declared insolvent.
The 10 retailers struggling for survival are:
Rite Aid
Operating in a highly competitive vertical against strong players such as CVS and Walgreens, the drugstore chain's revenue fell 2% in its most recent 12-month period, with the company posting a net loss of $507 million.
Great Atlantic & Pacific Tea
The parent company of A&P also controls the Food Emporium, Pathmark and Super Fresh grocery chains. Lackluster sales have produced three consecutive annual losses. In a vertical where retailers are increasingly offering clearly differentiated value and high-end options, the mid-level, something-for-everyone store model has less and less room for marginal players.
Liz Claiborne
Sales for the retailer declined 23% last year, helping produce a net loss of $286 million, and the company has lost money for three consecutive years. The retailer's high-end fashion labels (Juicy Couture, Kate Spade and Lucky Brand jeans) appeal to younger shoppers, a group with a dearth of disposable income during tough economic times.
Borders Group
Stiff competition from discounters and online book sellers has contributed to Borders' woes, with the company losing money in each of the past four years. Borders lost its chief executive, turnaround artist Ron Marshall, when he left in January 2010 for A&P (whose parent company is also on the at-risk list). Borders hopes a $25 million investment from its new CEO, Bennett LeBow, will help the company turn the page.
Bon-Ton Stores
Last year, Moody's Investor Services put this 280-unit regional department store chain on its list of 283 companies most likely to default on its debts. In fiscal 2009, the retailer used cost-cutting measures to produce a modest $18 million profit on a 4% sales decline, following a $170 million net loss in fiscal 2008. Mid-scale department stores such as Bon-Ton have faced challenges in a market that is increasingly moving to the extremes of value and high-end/luxury.
Perfumania
In addition to offering fragrances at discounted prices, this 350-store retailer carries cosmetics and body care products. Even though the chain boosted sales by 19% during its last 12-month period, the retailer still posted a net loss of $16 million. The retailer has not posted a profit since fiscal 2006.
Zale
The recession has hit upscale retailers hard, and with "Jewelers" in its store names it's difficult for Zales Jewelers to escape the perception that its products are luxuries. Sales have declined 13% over the past 12 months, and the retailer posted a net loss of $155 million for the period.
Trans World Entertainment
Even with well-known store brands that include f.y.e. music stores and Suncoast Motion Picture video outlets, this retailer has suffered from sweeping changes in the ways consumers purchase entertainment products -- away from stores and toward Netflix-style deliveries, cable and Internet on-demand services and self-service rental kiosks. Sales fell 18% over the past 12 months, resulting in a $40 million net loss for the retailer, which has been operating in the red for the past three years.
ValueVision Media
This home shopping service operates under the name ShopNBC; it was conceived as a shopping corollary to General Electric's NBC network. However, the company has not been able to raise its profile against better-known home shopping retailers QVC and HSN. With the exception of fiscal 2007, when it earned a $23 million profit, the retailer has sustained net losses throughout the past decade.
Conn's
This appliance and electronics retailer posted a $1.7 million profit last year on a 15% revenue decline. However, its net income has fallen dramatically, from nearly $40 million in fiscal 2007 to $8 million in fiscal 2009. With commodity products such as electronics and appliances, retailers need every ounce of merchandising expertise and customer service savvy to survive during tough times, as Circuit City discovered too late.
For related content, see:
The Great Regression: 8 Surprising Setbacks
10 Retail Candidates for the Endangered Species List
10 Bankruptcies That Rocked Retailing in 2010
437 Retail Store Closings Signal Major Brand Restructuring