The power of a brand is that it can instantly give consumers the impression of quality and consistency. A great brand is an assurance that a product or service is worth the asking price and more.
However, when a brand goes bad, it can be caught in a negative feedback loop that the company, despite its best efforts, can't escape. The five household names below are in this predicament, and it may only be a matter of time before they disappear.
While the whole structure of Sears Holdings (NASDAQ: SHLD) looks like it's teetering on the edge of bankruptcy, Kmart may be the division of the company that succumbs first — the lamb that's sacrificed in an effort to save the Sears brand.
Although Kmart is actually performing slightly better than Sears, relatively speaking, the Kmart chain has endured the largest number of store closures over the past year. At the end of the second quarter in July, there were 273 fewer Kmart stores operating than there were in the year-ago period, while Sears had 69 fewer stores.
Sears chairman and CEO Eddie Lampert swore last year he wasn't shuttering the Kmart chain despite all appearances to the contrary, saying that as long as one store remained profitable, there would always be one open. Though the chain still shows an operating profit at the moment and its sales aren't declining as quickly as Sears', it's still being dramatically downsized, and it may ultimately shrink to the point of disappearing.
The Limited was once a popular working woman's clothing brand owned by Limited Brands, which also owns Victoria's Secret and Bath & Body Works. But the parent company must have seen the writing on the wall when it sold The Limited to private-equity firm Sun Capital Partners. The Limited ended up closing every single one of its 250 brick-and-mortar stores and firing 4,000 employees, with the intent to move all its inventory online.
It's not an unprecedented move. Kenneth Cole shut down its physical operations and went all in as an online-only store, as did women's fashion outlet Bebe. Filene's Basement, after declaring bankruptcy, was revived by Macy's (NYSE: M) in 2015 as an online-only discount site.
In mid-January, however, The Limited declared bankruptcy and was subsequently purchased by private-equity firm Sycamore Partners. Just last month, The Limited products were made available for purchase once again on its own website, but whether it can remain viable is anybody's guess.
Toymaker Mattel (NASDAQ: MAT) is reeling from the poor retail environment that caused Toys R Us to go bankrupt, as well as Hollywood's bust of a summer blockbuster season. So bad was its third-quarter earnings report that it ended up suspending its dividend, a step few companies take unless they're in truly dire straits.
Mattel just can't sell its dolls anymore. Worldwide sales of Barbie were down 7%, American Girl dolls were down 30%, and other girl dolls like Monster High and Polly Pocket were down 42%. Things haven't gone well for Mattel since Disney stripped it of the Frozen and Princess line of dolls and gave them to archrival Hasbro (NASDAQ: HAS) last year.
Hasbro may now be able to acquire its competitor at a low price. Unfortunately, that doesn't necessarily mean the Mattel name would live on; it's the toys and the games that have value, while the Mattel brand could be allowed to expire.
The once venerable department store chain J.C. Penney (NYSE: JCP) is circling the drain right along with Sears. The retailer had briefly shown signs of a comeback, but its recently released third-quarter earnings report fueled speculation that all of the changes it made may have been for naught.
After being upended by efforts to drag the aged department store into the 21st century, J.C. Penney undid virtually all the new-era improvements that had been made, and the chain's finances appeared to have stabilized. However, amid a severe slump in sales, the company recently decided to "reset" its women's apparel department by liquidating much of the inventory. Given that this segment accounts for a quarter of J.C. Penney's revenue, that inventory dump did little to inspire confidence in the company's turnaround efforts.
Unlike Sears, which can dip into the deep pockets of its hedge fund chairman to stay afloat, J.C. Penney is bereft of benefactors. As Amazon.com positions itself to become the biggest apparel retailer in the market, the outcome for this shopping-mall mainstay looks bleak.
Bed Bath & Beyond
It was expected that when Linens n Things went bankrupt, Bed Bath & Beyond (NASDAQ: BBBY) would pick up the ball and keep running downfield. Instead, Amazon suddenly became a viable competitor to home goods retailers, even as mass merchandisers like Walmart, Costco, and Target expanded their selections.
Bed Bath & Beyond also made a major mistake in almost completely ignoring the online space. It wasn't until late in the game that it made a concerted effort to build up its e-commerce presence, and even then it got distracted, creating failed "flash sale" site One King's Lane and branching out into more categories that are far afield from its core competency.
In addition to Buybuy Baby, Christmas Tree Shops, Harmon Face Value, and Cost Plus World Market, it also owns Of a Kind, PersonalizationMall.com, Chef Central, Decorist, and Linen Holdings. And now there are more competitors encroaching on its territory, such as At Home, a sprawling home decor supercenter.
In the wake of its niche's upheaval, Bed Bath & Beyond may have made itself superfluous.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Hasbro, and Walt Disney. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.
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