2 retailers bankrupt after sales declines

As economy slows, others may follow

A customer looks at air purifiers at a Sharper Image in New York. Sharper Image Corp. plans to close 90 of its 184 stores as soon as possible after it sells their inventories. (Daniel Acker/Bloomberg News)

NEW YORK - A weak holiday season and a struggling economy led retailers Sharper Image Corp. and Lillian Vernon Corp. to file for bankruptcy this week. Analysts predict others could soon follow as consumer spending worsens.

"You'll see a record number of bankruptcies over the next 50, 100, and 1,000 days," said Burt P. Flickinger III, managing director of the New York-based retail consulting firm Strategic Resource Group. "Consumers are cash- and credit-constrained. They're out of purchasing power."

Both Sharper Image, known for its high-tech novelty gadgets, and Lillian Vernon, which sells low-cost gifts and gadgets through its catalog and website, have long been plagued with falling sales. But retailers across the sector have been laying off staff and closing stores as consumers cut back on discretionary spending.

The International Council of Shopping Centers projects 2008 store closings could reach 5,770 stores in 2008, the largest number since 2004. Retailers as a whole reported their worst January same-store sales in almost four decades.

Flickinger said the problem is partly food and fuel inflation. While consumers used to pay 10 cents of every dollar for food and fuel, they now pay up to 20 cents per dollar.

Retail analyst Patricia Edwards of San Francisco-based Wentworth Hauser and Violich said while Sharper Image and Lillian Vernon were the "weak links in the herd," others are likely to follow as things weaken - or seem to.

"Even if we never hit a classical recession, the consumer is in a recession," she said. "It may just be a mental recession, but as long as people are feeling fear, they're not going to spend the way they did before."

In an affidavit filed with the US Bankruptcy Court for the District of Delaware on Tuesday, Sharper Image chief financial officer Rebecca L. Roedell said the company has experienced declining sales since 2004 and recorded losses in fiscal 2005 to 2007, continuing into 2008.

She said the company is in a "severe liquidity crisis," hurt by tougher competition, deteriorating gross margins, pending litigation, and the volatile credit and financing markets, among other factors.

San Francisco-based Sharper Image plans to close 90 of its 184 stores as soon as possible after it sells their inventories.

Sharper Image shares lost $1.03, or 71.5 percent, to 41 cents, and hit an all-time low of 29 cents at one point in the session. Lillian Vernon is not publicly traded.