Dead Men Walking
Posted July 12th, 2008 by Tia
This story came out of our Pittsburgh office and I thought it was so good I wanted to share!!
Category killers, the retailers that build relatively large stores and specialize in certain types of goods, need a new name.
Some of the biggest U.S. sellers of books, consumer electronics, home furnishings and office products appear to be dying a slow death. Growing competition and a slumping economy are endangering their financial health.
Office Depot Inc., the world's second-largest retailer of office supplies, is among them. The company's shares have fallen for the last seven quarters, the longest streak in the Standard & Poor's 500 Index. Two days ago, they tumbled 32 percent on disappointing second-quarter sales and earnings figures.
Circuit City Stores Inc., a money-losing electronics chain put up for sale in May, piled up the S&P 500's biggest run of losses before its removal from the index in March. The stock has declined for eight quarters in a row and lost 22 percent this month as Blockbuster Inc. abandoned a proposed takeover.
Borders Group Inc. set a record low on March 20, when the second-biggest U.S. bookstore owner asked for bids, scrapped its dividend and borrowed from investor William Ackman's hedge fund, its largest shareholder. The stock fell to $3.97 that day, and closed 46 cents above that price yesterday.
There's also Linens 'n Things Inc., the home-furnishings retailer that filed for bankruptcy just 27 months after a buyout by Apollo Management LP. The company is going through a round of store closures and is seeking court approval for a second.
Competitive Balance
None of these companies is exactly bumping off competitors. And another term used to describe them — big-box retailers, or chains of single-story, free-standing stores with tens of thousands of square feet apiece — also applies to Wal-Mart Stores Inc. and Target Corp., the biggest discounters.
Wal-Mart has advanced 21 percent this year as consumers flock to its stores for bargains. While Target has fallen 5.4 percent, it's beating the S&P 500 by about 10 percentage points.
The two most evenly matched category killers in the stock market may be Home Depot Inc. and Lowe's Cos., the largest U.S. home-improvement chains. Both have dropped more than 10 percent this year as the housing market has deteriorated.
Elsewhere, the balance is a whole lot more lopsided. Staples Inc., the world's largest seller of office products, trades at about triple the price-earnings ratio of Office Depot and OfficeMax Inc., the U.S.'s third-largest chain.
Best Buy Co., the country's biggest electronics chain, is holding up much better than Circuit City. Its shares have lost 24 percent this year, around half as much as its competitor.
Bankruptcy Benefit
Within the book business, Amazon.com Inc. has fallen less than Borders and Barnes & Noble Inc., the world's largest bookseller — and a potential bidder for Borders.
Bed Bath & Beyond Inc., the biggest U.S. home-furnishings retailer, stands to benefit from the bankruptcy of Linens 'n Things. The company picked up market share in its fiscal first quarter and its shares have lost only 2.4 percent this year.
Describing the losers as category killers just doesn't make sense. They are more like dead men walking.
