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, and analysts predict others could soon follow them 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 Web site, 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 of closings 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.
"Companies are contracting and collapsing," he said. "You'll see it in food and drug, discount and department stores, as well as specialty stores and dollar stores. Every major form of retailing."
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 do.
"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 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.
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 crisis-management expert Ron Conway as its new chief executive.
In filing with the Securities and Exchange Commission on Tuesday, Sharper Image said it will pay Conway's company, Conway, Del Genio, Gries & Co., $150,000 per month plus a percentage from any restructured debt or assets sold.
Lillian Vernon, meanwhile, laid off half its year-round work force.
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 during the day. Lillian Vernon was not publicly traded.