On the brink of failure
Many major companies like Circuit City and Linens ‘n Things went bankrupt during the economic crisis of 2008-2009. These companies folded under high debt levels and a decline in sales. Just because some companies were able to survive the economic downturn of the past few years doesn’t mean they are out of the woods yet. Companies like Blockbuster (NYSE: BBI) and Borders (NYSE: BGP) are going down with their industries, meaning that making drastic changes is their only option. Here are five major companies that are struggling — it is unlikely that all will survive.
Blockbuster
The former king of video rentals is on life support. Blockbuster’s shares are trading under 30 cents per share and the firm is saddled with debt. Blockbuster has over $963 million in debt. The company’s biggest problem is that its business model no longer works. Blockbuster rose to prominence by renting videos and DVDs to customers from its traditional brick and mortar stores.
However, Netflix has become the new king of movie rentals with its DVD by mail strategy. To make matters worse, Redbox is quickly gaining market share with its $1 DVD rentals from kiosks set up at grocers, fast food chains and convenience stores. Blockbuster is trying to change its business by adopting a DVD rental kiosk model and offering mobile movies via smartphone. But unless Blockbuster can rid itself of its onerous debt burden, these changes may be too little, too late.
Rite Aid
Things haven’t been right at Rite Aid (NYSE: RAD) in quite a long time. Rite Aid’s biggest problem is that the drug store giant just doesn’t make money. Rite Aid has been losing money and is expected to have negative earnings for the foreseeable future. Add in that Rite Aid has only $150 million in cash and more than $6 billion dollars in debt and you can see why the outlook isn’t so rosy.
The ill-advised Brooks Eckerd acquisition has buried the company under a mountain of debt. Rite Aid has seen its same store sales decline for nine consecutive months. With Walgreens, CVS and Wal-mart all competing for pharmaceutical sales, it doesn’t appear that there is any viable plan that can save Rite Aid.
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