business news in context, analysis with attitude

US News & World Report has a story suggesting that there are at least 15 US companies likely to be out of business, or radically altered, by the end of the year – and four of them are familiar companies often covered here on MNB.

According to the story, “Many of these firms are in industries directly hit by the slowdown in consumer spending, such as retail, automotive, housing and entertainment. But there are other common threads. Most of these firms have limited cash for a rainy day, and a lot of debt, with large interest payments due over the next year. In ordinary times, it might not be so hard to refinance loans, or get new ones, to help keep the cash flowing. But in an acute credit crunch it's a different story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit. It's a terrible time to be cash-poor.”

The four companies are:

• Rite Aid, which is described as being the most leveraged drugstore chain in the US that is simultaneously facing tougher competition from Walmart. In the past year, its stock price has declined 92 percent.

• Sbarro, the pizza chain, is dealing with the reality that many of its outlets are in malls, which are suffering from dramatic decreases in traffic. And unlike other fast food chains, Sbarro cannot depend on a breakfast or late-night menu. Add to that the fact that it has more debt and less cash flow than most of its competition.

• Blockbuster, which is facing competition from cable and Internet operators that don’t require people to go to the store, is trying to figure out how to raise prices without alienating customers. It won’t be easy.

• Krispy Kreme has a load of problems – overexpansion, a more health-conscious consumer base, and too much debt. Plus, it hasn’t had a profit in three years.

KC's View:
The question that I ask when I see these companies identified this way is how, if at all, they are relevant for a 21st century consumer in a 21st century economy. We live at a time when people are buying what they need, not what they want; and they are looking for retail options that make a compelling case for why a person should go there and not someone else.

I can make the argument that three of them are close to irrelevant … at least from my perspective as a consumer. Can’t imagine buying anything at Sbarro or Krispy Kreme anymore, and I haven't walked into a Blockbuster store to buy or rent anything in at least five years, maybe longer.

Rite Aid is the one exception, but it may simply be in so much trouble, facing too much competition, to be able to become a vibrant competitor.

Relevance is the key. Without it, you can’t open the door to the consumer’s heart and mind and stomach.