What's the Real Story Behind Sharper Image's Chapter 11 Filing?

If you like gadgets as much as I do, it was hard to miss Sharper Images' Chapter 11 filing last week. For those who do not like cheap, imported electronic junk and have had no experience with the outfit, Sharper Image is essentially a geeks' paradise -- an ode to things you don't need and could never conceive of needing unless you actually saw them. Enough background. From a Spend Management perspective, what is so significant about their bankruptcy? Plenty, I'd argue.

According to their filing and other blog coverage of the news, the company "said it is in a 'severe liquidity crises' and will shutter 90 of its 184 stores and sell off unprofitable inventory in an effort to conserve cash. It had total assets of $251.5 million and $199 million in total debts at the close of its most recent fiscal year, ended Jan. 31. Sharper Image's sales, earnings and stock market value have cratered over the past four years after its core product, the Ionic Breeze air purifier, was vilified by Consumer Reports magazine, resulting in numerous lawsuits, while indoor malls, the bastion of its store base, lost favor with shoppers."

Further down on the list of reasons for the restructuring are "compressed margins and tighter credit terms from suppliers." However, might these items actually be better placed on top of the list? Here's my logic. Yes, we all know the Ionic Breeze is not exactly a top-end air purifier (seriously, there's no activated carbon in it, which brings up another Spend Management tangent of mine if you're curious). But I believe part of what has significantly hurt Sharper Image's margins on their lower end items -- which were keeping them afloat, is my guess, through the recent lawsuits and rough times -- are increasing import costs. From what I've been able to gather, Sharper Image has directly imported finished goods in a number of categories over the years. These items would have typically carried with them higher margin than those from creditors such as Garmin.

Imagine the perfect storm of a rough retail environment, lawsuits and now rising import prices for these categories as well (not to mention tougher payment demands from suppliers). This, to me, is what doomed Sharper Image to the restructuring courts. So chalk up another bankruptcy -- at least in part -- to Spend Management challenges.

- Jason Busch

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