By Jim Edwards | BusinessInsider
Two days before the Wall Street Journal reported Kodak will file for bankruptcy, James R. Gregory, CEO of branding and market research firm CoreBrand, predicted that Kodak would “disappear” as a brand in 2012.
CoreBrand conducts 8,000 phone surveys of business leaders every year, and asks them about the corporate reputations of 800 companies in 49 industries. Participants are asked to rate brands based on favorability, overall reputation, perception of management, and investment potential.
Kodak has been in trouble for years, of course, after it invented the digital camera in 1975 and then failed to capitalize on it. But it was intriguing that the CoreBrand survey signaled the potential end of Kodak before its lawyers did.
Gregory says his data also shows that the Sears and Saab brands are failing to contribute to their companies’ fortunes, as is Yum! Brands and insurer Aon.
We asked Gregory to tell us which other companies’ brands appear to be in trouble, and why.
1. Kodak: Bankruptcy doesn’t mean the end for Kodak as a business. The company and its brands could be bought or restructured. But it isn’t looking good.
“There is high familiarity with the Kodak brand,” Gregory says, “but there’s a lack of clarity or focus for the organization, which shows up in our data. It’s much harder to understand what Kodak does these days. The film and development and printing of pictures is not something Kodak does anymore. Therefore, what is it they actually do? That’s something that’s not well understood.”
2. Sears: An operating loss is expected at Sears Holding Corp. for 2011 and the company is axing 100 to 120 Sears and Kmart stores to keep up. CEO Eddie Lampert is sticking with his company, however. Could Sears really disappear?
“Their brand has been suffering from the corporate brand perspective,” Gregory says. “As strong as a brand is, and it has huge familiarity and favorability over the years, you can’t continue to have a lack of focus without causing long-term damage.”
3. Avery Dennison: You’ve probably never heard of Avery Dennison but you’ve almost certainly used its products. It’s perhaps best-known for Hi-Liter pens. Avery just sold its office and consumer products business to 3M for $550 million. Could this be the beginning of the end for Avery? Gregory can’t say, but he notes that “The data is always accurate in identifying problems.”
4. Saab: An easy call, as Saab hasn’t made a car since April and it filed for bankruptcy in Sweden in December.
“The brand itself might be pretty strong, as is the case with Kodak. A brand alone cannot overcome the financial aspects of an organization,” Gregory says.
5. Aon: This is a surprise: The reinsurer signed a huge new sponsorship contract with Manchester United. Its name is arguably better known globally now than it has been in years.
Gregory’s data, however, argues that in the U.S. Aon’s marketing is not working, and therefore the company might as well drop the brand. “Aon has been one that has tried very hard to build its brand image. But it has been, basically from my perspective, ineffective. It might be more effective in other countries.”
6. CA Technologies: CA is in rude health. Its brand, however, is like a marketing witness protection program. The company used to be better known as Computer Associates but that name was tarnished by an accounting scandal in the mid-2000s.
“Again this is a brand that has evolved over time,” Gregory says. “They have not really focused on the corporate image of their organization so their brand is not pulling its weight in terms of what it should be doing.”
7. Yum! Brands: Yum! is the owner of KFC, Taco Bell and Pizza Hut. The three restaurant chains were originally spun out of PepsiCo, and the company is doing well as a whole. But the fourth moniker isn’t adding any brand equity, and the company could live without it if it wanted to, Gregory says. “One of the jobs of a holding company is to make sure the corporate message is getting out. I think they did at the very beginning but they never put meaning behind it.”
8. Pittsburgh Plate Glass Company (PPG): PPG makes paint and other industrial products, including Lucite, the see-through plastic used in stripper heels. PPG suffers from a similar problem as Yum! — its individual products and brands are famous in their own worlds, but the parent company remains an unknown.
“PPG traditionally has been a big brand in the U.S., not as a name consumers would know but as a manufacturer of paint and glass and other things,” Gregory says. Yet among its core audience — “avid readers of the business press,” Gregory says — PPG ought to be as famous as Behr or Benjamin Moore.
9. Steelcase: Steelcase is an office furniture manufacturer. If you’ve ever had a job, there’s a good chance you’ve used or sat on its products. “This one perplexes me more than most,” Gregory says. “They make wonderful products. They’re a U.S.-based company. They’ve been able to withstand the ups and downs of the office furniture industry. I just don’t think they have a strong corporate brand.”
“It doesn’t mean the company isn’t performing well,” Gregory says. “Our point of view is on the corporate brand and how it’s contributing to the financial value of the company.”
10. KeyBank: It’s a bank, and like all banks suffers from the horrible reputation of the financial services industry as a whole. “They’re also a smaller regional bank as opposed to a Bank of America or Citibank,” Gregory says. One obvious problem: What, exactly, is the difference between KeyBank and KeyCorp.?
KODAK TEETERS ON THE BRINK OF BANKRUPTCY
By MIKE SPECTOR And DANA MATTIOLI | The Wall Street Journal
Eastman Kodak Co. is preparing to seek bankruptcy protection in the coming weeks, people familiar with the matter said, a move that would cap a stunning comedown for a company that once ranked among America’s corporate titans.
The 131-year-old company is still making last-ditch efforts to sell off some of its patent portfolio and could avoid Chapter 11 if it succeeds, one of the people said. But the company has started making preparations for a filing in case those efforts fail, including talking to banks about some $1 billion in financing to keep it afloat during bankruptcy proceedings, the people said.
A Kodak spokesman said the company “does not comment on market rumor or speculation.”
A filing could come as soon as this month or early February, one of the people familiar with the matter said. Kodak would continue to pay its bills and operate normally while under bankruptcy protection, the people said. But the company’s focus would then be the sale of some 1,100 patents through a court-supervised auction, the people said.
That Kodak is even contemplating a bankruptcy filing represents a final reversal of fortune for a company that once dominated its industry, drawing engineering talent from around the country to its Rochester, N.Y., headquarters and plowing money into research that produced thousands of breakthroughs in imaging and other technologies.
The company, for instance, invented the digital camera—in 1975—but never managed to capitalize on the new technology.
Casting about for alternatives to its lucrative but shrinking film business, Kodak toyed with chemicals, bathroom cleaners and medical-testing devices in the 1980s and 1990s, before deciding to focus on consumer and commercial printers in the past half-decade under Chief Executive Antonio Perez.
None of the new pursuits generated the cash needed to fund the change in course and cover the company’s big obligations to its retirees. A Chapter 11 filing could help Kodak shed some of those obligations, but the viability of the company’s printer strategy has yet to be demonstrated, raising questions about the fate of the company’s 19,000 employees.
Such uncertainty was once unthinkable at Kodak, whose near-monopoly on film produced high margins that the company shared with its workers. On “wage dividend days,” a tradition started by Kodak founder George Eastman, the company would pay out bonuses to all workers based on its results, and employees would use the checks to buy cars and celebrate at fancy restaurants.
Former employees say the company was the Apple Inc. or Google Inc. of its time. Robert Shanebrook, 64 years old, who started at the company in 1967 and was most recently world-wide product manager for professional photographic film, recalls young talent traipsing through Kodak’s sprawling corporate campus. At lunch, they would crowd the auditorium to watch a daily movie at an on-site theater. Other employees would play basketball on the company courts.
“We had this self-imposed opinion of ourselves that we could do anything, that we were undefeatable,” Mr. Shanebrook said.
Kodak’s troubles date back to the 1980s, when the company struggled with foreign competitors that stole its market share in film. The company later had to cope with the rise of digital photography and smartphones.
It wasn’t until 10 years ago that the mood began to sour, said Mr. Shanebrook. By 2003, Kodak announced it would stop making investments in film. “I didn’t want to stick around for the demise,” he said.
Kodak shares closed Wednesday at 47 cents, down 28% after The Wall Street Journal reported the company was preparing a Chapter 11 filing.
Kodak has lost money each year but one since Mr. Perez, who previously headed the printer business at Hewlett-Packard Co., took over in 2005. The company’s problems came to a head in 2011, as Mr. Perez’s strategy of using patent lawsuits and licensing deals to raise cash ran dry.
Hoping to plug the hole, Kodak put some of its digital patents up for sale in August. Efforts to sell the portfolio have been slowed by bidders’ concerns that Kodak might seek bankruptcy protection. The company has talked to hedge funds about borrowing hundreds of millions of dollars to bridge its finances until the patents sell, but the talks have faltered, people familiar with the matter said.
The first sign of acute cash pressure came in late September, when Kodak drew $160 million from its credit line at a time when it had told investors it would be building cash. The move sent Kodak’s stock tumbling and raised fresh concerns about the company’s viability.
Soon after, Kodak hired restructuring lawyers and advisers to help shore up its finances.
The company and its board have weighed a potential bankruptcy filing for months. Advisers told Kodak a filing would make its patent sale easier and likely allow the company to command a higher price, people familiar with the matter have said. The obligation to cover pension and health-care costs for retirees could also be purged through bankruptcy proceedings, the people said.
Those obligations—which run to hundreds of millions of dollars a year—as well as the unprofitable state of Kodak’s new businesses, have made the company undesirable as a takeover target, people familiar with the matter said.
During a two-day meeting of the company’s board, management and advisers in mid-December, executives were briefed on how Kodak would fund itself during bankruptcy proceedings should efforts to sell its patents fall short, a person familiar with the matter said.
Kodak is in discussions with large banks including J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. for so-called debtor-in-possession financing to keep the company operating in bankruptcy court, people familiar with the matter said.
Kodak has also held discussions with bondholders and a group led by investment firm Cerberus Capital Management LP about a bankruptcy financing package, the people said.
Should it seek bankruptcy protection, Kodak would follow other well-known companies that have failed to adapt to rapidly changing business models. They included Polaroid Corp., which filed for bankruptcy protection a second time in December 2008; Borders Group Inc., which liquidated itself last year; and Blockbuster Inc., which filed for bankruptcy protection in 2010 and was later bought by Dish Network Corp. A bankruptcy filing would kick off what is expected to be a busier year in restructuring circles, as economic growth continues to drag and fears about European sovereign debt woes threaten to make credit markets less inviting for companies that need to refinance their debts.
Mr. Perez decided to base the company’s future on consumer and commercial inkjet printing. But the saturated market has proved tough to penetrate, and Kodak is paying heavily to subsidize sales as it builds a base of users for its ink.
The company remains a bit player in a printer market dominated by giants like H-P. Kodak ranks fifth world-wide, according to technology data firm IDC, with a market share of 2.6% in the first nine months of 2011.
As the company works on a restructuring plan, a key issue for creditors is whether the printer operations are worth supporting, or whether the bulk of the company’s value is in its patents.
Nortel Networks Corp., a company that also had fallen behind the technology curve, opted to liquidate itself in bankruptcy court rather than reorganize, raising a greater than expected $4.5 billion for its patent trove.
Kodak’s founder, Mr. Eastman, took his life at the age of 77 in what is now a museum celebrating the founder and Kodak’s impact on photography. His suicide note read: “To my friends, my work is done. Why wait?”
PRESIDENT’S COUNCIL ON JOBS AND COMPETITIVENESS
Antonio M. Perez
Chairman and CEO, Eastman Kodak Company
Since joining the company in April 2003, Kodak’s Chairman and Chief Executive Officer, Antonio M. Perez, has led the worldwide transformation of Kodak from a business based on film to one based primarily on digital technologies. In the past seven years, Kodak introduced an array of disruptive new digital technologies and products for consumer and commercial applications that generated approximately $5.5 billion in revenue in 2010. Those include, among others, consumer inkjet printers, pocket video cameras, sensors for digital products, and dry labs for printing at retail, as well as offset-class commercial inkjet presses, high-volume digital production presses, digital controllers, workflow software solutions and digital plates for commercial printing and packaging. The result is a new Kodak — a company where digital products account for 75 percent of revenue, where higher gross margin commercial businesses account for more than 50 percent of revenue, and with a portfolio of cash-generating traditional businesses.
Mr. Perez brings to the task his experience from a 25-year career at Hewlett-Packard Company, where he was a corporate vice president and a member of the company’s Executive Council. As President of HP’s Consumer Business, Mr. Perez spearheaded the company’s efforts to build a business in digital imaging and electronic publishing, generating worldwide revenue of more than $16 billion.
Prior to that assignment, Mr. Perez served as President and CEO of HP’s inkjet imaging business for five years. During that time, the installed base of HP’s inkjet printers grew from 17 million to 100 million worldwide, with revenue totaling more than $10 billion.
After HP, Mr. Perez was President and CEO of Gemplus International, where he led the effort to take the company public. While at Gemplus, he transformed the company into the leading Smart Card-based solution provider in the fast-growing wireless and financial markets. In the first fiscal year, revenue at Gemplus grew 70 percent, from $700 million to $1.2 billion.
Mr. Perez is a member of The Business Council and the Business Roundtable, where he serves as Chair of the Consumer Health and Retirement Initiative and is a member of the Executive Committee. He serves as a member of the Escuela Superior de Administración y Dirección de Empresas (ESADE) International Advisory Board. He is also a member of the board of trustees of the George Eastman House International Museum of Photography and Film. Mr. Perez is a former member of the Board of Directors of Adobe, Freescale and Schering-Plough Corporation. He is also the former Chair of the Diversity Best Practices CEO Diversity Initiative.
Mr. Perez is also a founding board member of Change the Equation, a CEO-led initiative to move the U.S. to the top of the pack in science and math education over the next decade.
An American citizen born in Spain, Mr. Perez studied electronic engineering, marketing, and business in Spain and France.