7 Companies That Collapsed in 2016
2017 has been a mixed year for the world’s biggest companies.
Some companies, like Disney and Huawei, have soared (see my recent article, “6 Companies That Won Big in 2016”). Others, like Wells Fargo and Chipotle, have experienced some serious, but not fatal, turbulence. And then, every year, we see pass before our eyes a list of companies that seem to rest on a knife’s edge, threatening to topple over finally into the abyss of closure and/or bankruptcy.
For the last several years, Sears and Abercrombie, for example, have held a spot on this list. The former lost $1.6 billion in the first three quarters of this alone with more losses sure to follow this quarter. But even after this continuous barrage, both retail chains are still clinging to life.
Finally, this year, a few of these at-risk companies actually succumbed and collapsed under the weight of dwindling revenues or internal strife, to sell their technology or product to other companies or to close their doors altogether.
While the following is certainly not an exhaustive list of all the companies that went belly-up this year, these seven companies were the most recognizable:
1. Pebble
When it started as a Kickstarter campaign back in 2013, the company behind the Pebble smartwatch started with a bang — the biggest bang the fundraising website had ever seen up to that point in time, in fact, with a staggering $11 million. Before long, however, they came into furious competition with fitness tracker company Fitbit. Now, only three years later, that competition ends with Pebble being swamped by debt and its technology acquired by Fitbit.
As part of the sale, Pebble’s devices will no longer be sold, while Fitbit will continue to make use of their software and some of Pebble’s employees. But the real loss is in the trust of those people who funded Pebble in 2013 and for Kickstarter itself, as BGR writer Chris Mills lamented:
“This isn’t how Kickstarter was supposed to work. The entire point of crowdfunding is to back products using cash from future customers. It’s supposed to avoid messy things like serious debt, major funding rounds and asset firesales. Pebble’s shock failure leaves all sorts of questions for Kickstarter. If Pebble, with all of the cards in its favor, couldn’t run a semi-successful business with Kickstarter, I’m not sure anyone can.”
2. American Apparel
This apparel retailer has been no stranger to controversy. Sexual misconduct by the company’s CEO had ensured that. But the company had also been floundering when 2016 began, having just emerged on the other side of painful bankruptcy proceedings that, among other changes, forced the exit of said controversial CEO. Still, at the beginning of this year, hopes were high that the retailer could return to prominence.
“This is the start of a new day at American Apparel,” new CEO Paula Schneider proclaimed optimistically in February. “With the enormous debt burden removed, we can now turn our full attention to our strategic turnaround, which will benefit our customers, vendors and employees.”
That optimism has proven misplaced.
By September, Schneider would also be removed as CEO and the company would be flailing. By late November of this year, American Apparel had filed for bankruptcy again. On the auction block is 101 stores and all of the company’s intellectual property rights, while it’s expected to layoff upwards of 3,500 workers and liquidate nine of its stores to pay off some of its debt.
3. SunEdison
Anyone who thinks the solar boom is all winners would do well to heed this story. SunEdison was once one of the fastest-growing companies in the solar race and set to acquire Vivint Solar and other companies. Unfortunately, that aggressive growth was fueled by lots of debt. By August, not only had the company filed for bankruptcy, but they were declared “hopelessly insolvent.”
Just how insolvent? Their debts outweighed their assets by somewhere between $1 billion and $2.5 billion.
As a result, in addition to bankruptcy, SunEdison has lost the Vivint Solar acquisition and is being investigated by the U.S. Department of Justice regarding the deal, trials that SunEdison is unlikely to survive.
4. Avaya
After years of heavy losses, this telecommunications company — once a competitor to giants like Cisco — had been unable to post profit since 2007. By 2016, it found itself drowning in debt, approximately $6 billion according to their bankruptcy filing.
Writer Matt Grech at GetVOIP pointed out, “Avaya is currently facing multiple upcoming debt maturities, including $600 million due in October 2017, as well as $5.3 billion in the 2018–2012 timeframe.”
Fortunately for Avaya, a buyer is expected to buy their call center unit for approximately $4 billion. But they might not be out of the woods yet.
“[H]ow Avaya will look once this is all said and done is, again, anybody’s guess,” said Grech. “It is completely possible the company will not finalize a sale, or file for chapter 11 protection at all- but then we might see the slow, drawn out death of Avaya over time.”
5. Key Energy
Oil and energy aren’t nearly as safe as they used to be. In the midst of the shale oil boom in the U.S., oilfield service company Key Energy took out debt to take advantage of the opportunity. But then in 2014, oil prices plummeted, thanks to some price manipulation by the Saudis, and U.S. oil production took a huge punch to the gut, including service providers like Key Energy. As a result, Key Energy was going into 2016 with a $1-billion loss around its neck and $1 billion in long-term debt.
Apparently, Key Energy is not alone. Since the beginning of 2015, over 150 North American oil companies and service providers have declared bankruptcy.
If Key Energy’s bankruptcy goes through, the company will likely survive, but will be restructure with assets sold off to pay down their considerable debt.
6. The Nasty Gal
Founded in 2006, this e-retailer soon became a symbol of the type of social media-fueled entrepreneurship that so many Millennials aspire to. Its founder Sophia Amorusa had been placed among Forbes’ 50 top self-made women. Their growth rate was solid. So how did The Nasty Gal end up on this list?
Apparently, all that growth required a lot of debt. Allison Enright at Internet Retailer commented, “They were able to grow their sales very quickly. But you can always grow really fast and not make any money.”
They were also being sued by a number of different parties regarding copyright infringement and discrimination claims. By November of this year, Amurosa, who had already given up her CEO seat, was being forced to step down as executive chairwoman, and they were filing for bankruptcy.
7. Bed, Bath & Beyond
You probably know their blue coupon. What you don’t know is that, for too long, that coupon has been Bed, Bath & Beyond’s only game plan. While the rest of the retail world has been adapting to meet the opportunities and challenges of the omnichannel shopping experience, Bed, Bath & Beyond hasn’t.
At the same time, the retailer was planning at the start of 2016, to open 29 new stores.
This investment, combined with slow sales growth and its unwillingness to adapt, is quickly becoming the undoing of Bed, Bath & Beyond. It’s website isn’t nearly as up-to-snuff as those of comparable retailers. Traffic to its stores is slipping. And revenues are starting to fall accordingly quarter over quarter.
“Its determinedness to maintain its current course could mean there’s little hope it will recover anytime soon,” said Rich Duprey at the Motley Fool simply.
