11 Household Names That Will Vanish By 2012

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At InvestingAnswers , we have a nose for sniffing out trouble.  We've profiled collapsing companies and most recently, the hundreds of banks at risk of being seized by the FDIC . Today our focus is brands.

Since the economic crisis, many well-known brands disappeared thanks to negative economic forces. Today, hundreds of large companies facing uneasy futures  remain. Whether they're going under, being bought out, or simply getting a new face, we believe these 11 companies will have a hard time making it to 2012 unchanged.

Borders
Borders ( BGP ) looked like it was out of the game at the end of 2008, when its share price hit $0.35, a historical low for the retailer.

But at the beginning of July, Borders finally released its Kobo e-Reader, nearly three years after Amazon (Nasdaq: AMZN) started selling its Kindle, and a year after Sony ( SNE ) and Barnes & Noble ( BKS ) released their e-Readers. Even though it was late to market, it looked like Borders had a shot at establishing itself as the no-frills discount e-retailer, pricing the Kobo at just $149. However, since its release, Sony, Amazon, and Barnes & Noble have dropped the prices of their e-Readers to more competitive levels.

But the future of the Borders brand may depend less on the e-Reader market and more on the outcome of a contentious court battle between Barnes & Noble and billionaire Ronald Burke. Burke is suing Barnes & Noble in an attempt to wrestle away a seat on its board of directors, and it is widely believed that if Burke wins the seat, he'll push the company into buying Borders.

Howard Johnson
Howard Johnson is part of the mammoth Wyndham Worldwide Corp. ( WND ) , which owns 13 hotel brands ranging from budget to luxury. Howard Johnson sits right in the middle of that stratum. Originally a 600-store-strong restaurant chain in the 1960s, it's now known primarily as a hotel chain.

While there are some international locations, Howard Johnson is largely an American franchise targeting families and leisure travelers. Rising traveling costs and high unemployment have hurt this demographic and Howard Johnson has failed to target a more lucrative one: business travelers. The brand has been stagnant for the last decade, and it has not initiated any notable marketing campaign or worked to maintain a loyal customer base.  The slow motion failure of Howard Johnson would simply mean that a great American classic -- but not a great American performer -- has run its course.

MySpace
When Rupert Murdoch's News Corp. (Nasdaq: NWSA) bought MySpace in 2005, it looked like a genius move. Over the next few years, MySpace grew into the most popular social networking site in the U.S.  In 2006, Google (Nasdaq: GOOG) paid News Corp $900 million to place search ads within MySpace pages.

But by April 2008, the spark had flickered, and dimmed. Facebook stepped into the light. And it's remained that way ever since. MySpace is currently ranked 25th in Internet traffic -- paltry in comparison to Facebook's #2 spot.

MySpace has struggled to return to its former glory days. In 2009, CEO Rupert Murdoch announced that the social networking site would fall short of its traffic commitments to Google. MySpace's lucrative ad deal with Google expires in August 2010 and there has been no announcement as to how it plans on replacing that revenue. Some analysts, including CNBC's Dennis Kneale, are calling on News Corp to shed some of its brands, including MySpace.

Playgirl
Times have been tough for the entire magazine industry -- classic publications like Gourmet , Modern Bride , Country Home , Vibe , and Blender all closed their doors in 2009. So it's not surprising that Playgirl , an X-rated magazine targeting women, would be among the wreckage.

Playgirl 's publishers, the privately-owned Blue Horizon Media, decided to move the magazine solely online after declining sales made it impossible to continue in print. But the magazine has experienced a renaissance of sorts after convincing Levi Johnston, the father of Bristol Palin's baby, to pose for a special print issue in 2010.
 
Playgirl plans to capitalize on the momentum and release five issues in 2010, and depending on the reception, come back full force by 2011.

So will Playgirl ultimately make it? The outlook's not so good. Even big publishing houses like Conde Nast and Hearst are having a hard time keeping the doors open, and Playgirl is already over-exerting itself paying astronomical fees for celebrity photo shoots.  Furthermore, the magazine's pay-per-view online business plan is falling short, as fewer and fewer people purchase subscriptions.

Acer
This leading Taiwanese computer manufacturer is best-known in the U.S. for its highly portable, cost-effective laptops. When you buy an Acer, you won't get the user-friendliness or visual appeal of an Apple (Nasdaq: AAPL) , but you will get an efficient device that still gets the job done.
 
By acquiring U.S.-based Gateway Inc., Acer has expanded its footprint in the U.S. and it plans to have a smartphone on the market by the end of this year. But further consolidation in the PC industry makes Acer a potential juicy acquisition for a struggling market giant, Dell (Nasdaq: DELL) . Acer and Dell have a complementary market exposure, and Acer's strong foreign market presence could help Dell expand outside of the U.S. market. Furthermore, Acer's strong retail channels complement Dell's focus on direct-to-consumer channels.  No stranger to game-changing acquisitions, Hewlett-Packard ( HP ) should be considered a potential buyer as well.

AOL
Nearly a decade ago, the AOL Time Warner media merger was valued at well over $100 billion. Today, that mega-merger is considered the all-time biggest destroyer of shareholder wealth, and AOL ( AOL ) has been assigned a much smaller price tag. But people often forget that AOL still has a lot going for it, making it an interesting acquisition target. For example, over the next five years, the company will generate cash equal to its current market cap of $2.3 billion.

Microsoft (Nasdaq: MSFT) recently made a run at Yahoo! (Nasdaq: YHOO) , a company valued at over $21 billion with a P/E ratio nearing 28. Why not scoop up a company that, at one-tenth the price of Yahoo!, will pay for itself in half a decade?  Microsoft would get the 5.8 million (mostly older) U.S. subscribers who still use AOL, and those users could be transitioned to Microsoft's Hotmail service and Bing search engine. Microsoft would also end up with the AOL homepage, which some analysts claim is worth $1 billion alone.

RadioShack
Whether you're looking for a hard-to-find battery or a remote that will control every on/off switch in your house, RadioShack ( RSH ) purports to have it all. Unfortunately, the slump in the consumer electronics space has slashed demand for the store's peripheral products. The recession has even forced RadioShack to ask the city of Fort Worth, Texas, site of its corporate headquarters, to relieve the firm of $10.76 million in tax liabilities.

There has been speculation that RadioShack has hired Goldman Sachs ( GS ) to explore buyout opportunities, and that Best Buy Co. ( BBY ) is an interested suitor. Look for this electronic accessory retailer to be gobbled up by a larger firm within 18 months.

f.y.e.
Trans World Entertainment Corp. (Nasdaq: TWMC) , owner of the f.y.e. music store chain ("for your entertainment"), was just named by Forbes to a list of troubled retailers.

Trans World closed 157 f.y.e. stores during fiscal 2009 and another 18 in the first quarter of 2010. The stores' sales of physical CDs have plummeted, with revenues falling -18% in one year. The company has operated at a loss since 2007. Bob Higgins, chairman and CEO of Trans World, has announced plans to close even more of the unprofitable stores, calling it "good business practice."

The company has been slashing prices, and now many CDs cost $9.99, the same price as a full-length digital album on Apple's (Nasdaq: AAPL) iTunes. But a return to profitability means convincing music buyers used to getting music online that they should come to the mall to sort through the racks of CDs like they did a generation ago.

U.S. Cellular
U.S. Cellular ( USM ) is the country's sixth-largest wireless carrier, bringing in $4.2 billion in operating revenue last year. However, smaller carriers are using lower prices to undercut U.S. Cellular while larger firms can offer better coverage and a wider array of mobile devices. U.S. Cellular currently finds itself in no man's land, and has been named a strong candidate for a leveraged buyout by Bank of America.

USM has never publicly expressed interest in being purchased, but according to Bank of America, current market conditions are ideal for weaker companies to be preyed upon by larger competitors. The company's solid customer base, including 6.1 million customers in 26 states makes the company a coveted target for a larger telecom player such as AT&T ( T ) or Verizon ( VZ ) to swoop in and bolster its own market cap.
Foot Locker
Casual shoe sales surpassed sneaker sales during the last decade and Foot Locker ( FL ) can no longer operate the massive sneaker super-centers it was once known for. It has already consolidated its Lady Foot Locker brand with the rest of its products as it continues to trim fat.

On January 8th, Foot Locker announced it would be closing 177 stores and cut 120 executive-level positions, and Moody's recently reaffirmed the junk status of a significant portion of Foot Looker's debt. Foot Locker's target consumer, the die-hard sneaker aficionado, is part of a younger consumer group experiencing high levels of unemployment.  In a highly competitive but possibly weakening retail sector, Foot Looker's reorganization may not be enough to pull it through a slow-growth environment, and we see this brand as a former retail giant on the way out.

Alcoa
Aluminum manufacturer Alcoa ( AA ) operates in a tough environment. Prices for inputs (electricity, caustic soda) continue to go up, but prices for the final product (refined aluminum) continue to go down. Some of its largest competitors are Chinese and Russian firms that exist only because of gigantic state subsidies. Subsidized companies have no incentive to stop producing, so the world is awash in aluminum. According to Rusal, the world's largest aluminum producer, the aluminum market may have a surplus of 500,000-700,000 tons in 2010. 

And to top it all off, Alcoa's debt load is as close to unsustainable as you can get.  For example, from March 31, 2009 to March 31, 2010, Alcoa paid $474 million in interest alone. That comes out to 20% of gross profit (Revenue - COGS) going to debt service before considering any other costs of doing business.  The high debt load could easily drive Alcoa into bankruptcy if low prices and high costs continue to put pressure on margins.

InvestingAnswers


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Basics


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