As new technologies emerge and consumer preferences change, companies must keep up with the times or face the demise of bankruptcy.
The following three companies simply haven’t been able to keep up with changing market conditions and could no longer exist within the next few years. Whether their fates turn out to be bankruptcy or a dirt-cheap buyout from a competitor, these companies could be in big trouble over the long haul.
While VeriFone’s credit card readers remain an industry leader at the moment, tectonic shifts in technology could eventually squash VeriFone into irrelevancy.
The proliferation of the mobile wallet is long overdue. Smartphones are already capable of storing credit card information and sending payments wirelessly, yet most businesses still do not accept card-less payments. This perplexing trend is keeping VeriFone alive right now. However, the day will eventually arrive when smartphones become the most popular method of payment, and VeriFone is in a poor position to adapt to this change.
Even if physical credit cards remain popular several years from now, VeriFone will face stiff competition from companies like Square and PayPal. The Square is a free device that plugs into any smartphone or tablet that allows users to accept credit card payments. Funds are automatically deposited into a bank account within 24 hours and Square only charges 2.75 percent for their services, which is less than industry credit card leaders. PayPal also offers a similar device.
VeriFone is not only falling behind from an innovation standpoint, but is also consistently failing to deliver financially. Revenue is contracting on a quarterly basis, the company is losing market share, and the company delivered a crushing $0.54 EPS loss in its most recent quarter.
VeriFone’s slogan is “The Way to Pay.” That may be the case right now, but several years from now VeriFone’s products could become extinct. Poor financial performance and loss of market share have caused the stock to plunge 48 percent over the last year.
Companies in Similar Situations: Research in Motion (BBRY) and Nokia (NOK)
American Apparel (APP)
American Apparel’s problems have persisted for years, and it’s a minor miracle that the company is still on its feet.
While American Apparel’s same store sales and revenue have increased by at least 10 percent year-over-year, the company is still not profitable. With a horrendous balance sheet and several sexual harassment lawsuits filed against CEO Dov Charney, it remains to be seen how long American Apparel can stay in business.
All of American Apparel’s garments are manufactured in an enormous downtown LA factory. While the “Made in the USA” tag is a strong selling point, consumers only care about two things when it comes to clothing: price and style.
With the relatively high expense of paying American workers, American Apparel certainly cannot deliver on price. According to the Institute of Global Labor and Human Rights, American garment workers can command up to $14 per hour. To cover these expenses keep margins at respectable levels, American Apparel must pass on these expenses to consumers in the form of higher prices.
To justify these prices, American Apparel must always deliver on style, which is unreasonable to expect from any clothing company. While the company’s pro-gay marriage and pro-immigration reform “Legalize” campaign was a hit, styles come and go. When trendy customers inevitably take their business elsewhere for an extended period of time, American Apparel may not be able to stay alive with its compiling long-term debt and managerial issues.
RadioShack is perfectly aware of the challenges it faces in this brutal retail environment and is eyeing a turnaround. Earlier this year, new CEO Joseph Magnacca spoke confidently about the company’s future; he cited improving management, refining in-store experience, and fixing brand reputation as the keys to a company turnaround. However, rhetoric and ubiquitous ideals won’t save RadioShack from ferocious retail competition.
The rise of Amazon.com (AMZN) has clobbered RadioShack’s sales and earnings. Amazon offers almost every single electronic device on the market at a discount and with free two-day shipping. While Amazon lacks strength in smartphone sales, Apple, Verizon, Sprint, and AT&T stores have picked up this slack. As a result, RadioShack doesn’t have a single competitive advantage in any of its operations.
The company reported a $60.9 million operating loss for 2012 on contracting sales and margins. In its most recent quarter, RadioShack lost $0.35 per share, down from a loss of $0.05 in the same period a year ago, prompting the stock to plunge 82 percent since the beginning of 2010.
There’s simply not a lot RadioShack’s management can do to reverse the trends of online retail and consumer preference, and analysts tend to agree. According to Yahoo! Finance, not a single analyst has a “buy” rating on the stock. RadioShack shareholders’ last hope could be a buyout.
Company in Similar Situation: Best Buy (BBY)