Troubled retailers Sharper Image and Lillian Vernon have filed for bankruptcy, pointing to the effects of a weak holiday season and a struggling economy.
Both Sharper Image , known for its high-tech novelty gadgets, and Lillian Vernon, which sells low-cost gifts and gadgets through its catalog and Web site, have long been plagued with falling sales.
But an increasingly weak retail environment proved to be the breaking point for the retailers. Consumers have cut back on discretionary spending as credit and housing markets remain weak and high food and gas prices persist.
In an affidavit filed with the U.S. 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 net 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.
A rejected settlement offer related to a class-action lawsuit involving its air purifiers led to a drop in the company's stock price, loss in market confidence and eventually contracted credit terms from vendors and suppliers, Roedell said.
San Francisco-based Sharper Image plans to close 90 of its 184 stores as soon as possible after it sells their inventories. It plans to continue to conduct business as usual while it develops a reorganization plan.
Meanwhile, Lillian Vernon Chief Financial Officer Robert J. Eveleigh said in an affidavit Wednesday that the company, which has a highly cyclical business that peaks during the Christmas holidays, has experienced declining sales and rising costs over the past decade.
"During the past holiday season expected sales growth did not occur, which resulted in lower profitability and significant unsold inventory," Eveleigh wrote. "These factors combined to significantly impair (Lillian Vernon's) ability to find additional financing."
The company is evaluating whether it is in the best interest of its shareholders to sell itself or liquidate.
Both companies had recently attempted management changes and other moves to try and help results.
Last week, Sharper Image named a crisis-management expert as its new chief executive, while Lillian Vernon laid off half its year-round work force.
Soleil Securities Group analyst Scott Tilghman said in a note to investors on Wednesday that Sharper Image's filing was not a surprise.
"Sales have simply failed to normalize given the sustained pressure on the company's two core product categories, air purifiers and massage chairs, while macroeconomic pressures have heightened the challenges for the company," he wrote. "The series of management changes over the last couple of years have not stopped the company's poor fundamental performance nor have they materialized in significant strategic changes."
Tilghman, who had rated Sharper Image "Hold," said he was discontinuing coverage of Sharper Image.
"We find no reason for investors to be involved with Sharper Image in the near term," he wrote.