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Gadget giant Sharper Image goes bankrupt

The company's single-minded focus on gadgets, once its strength, ultimately sparked its downfall.

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(FORTUNE Small Business) -- Sharper Image Corp (SHRP)., the San Francisco-based gadget retailer famous for its Razor Scooters and a line of air purifiers, filed for Chapter 11 bankruptcy protection on Tuesday after posting net losses for three consecutive years.

The company's stock plunged 72% on the news, ending the day at to $0.41 per share, after closing yesterday at $1.44.

Sharper Image had $251.5 million in assets and $199 million in debt as of Jan. 31, according to last night's filing in U.S. bankruptcy court in Wilmington, Delaware. The company plans to continue conducting business as usual while developing a reorganization plan, according to a press release.

It is seeking a $60 million loan from Wells Fargo & Co. to keep up its operations, and is set to close 60 of its 183 stores nationwide.

In addition to declining sales, a prolonged class-action suit regarding the efficacy of the company's Ionic Breeze air purifiers contributed to Shaper Image's woes.

"Their strategy of being dependent upon one product category in a hard consumer environment has obviously backfired on them," said Joan Storms, an analyst with Wedbush Morgan Securities Inc. She said that she was "not all that hopeful" about the company making a comeback.

Ironically, the Sharper Image's downfall has its roots in the same decision that helped the company get big: its single-minded focus on the gadget market. In an October 2002 piece for Fortune Small Business, founder and then-CEO Richard Thalheimer said that his company's specialization was the foundation of its greatness.

"A lot people made fun us," Thalheimer wrote. "They said, 'The Sharper Image is a one-trick pony. They don't have anything else.' But that was just really, truly a misunderstanding of our business."

Thalheimer eschewed franchising and the idea of bringing in outside management, preferring the freedom to run his business as he saw fit.

"I'd been told by a lot of people, 'Oh, once you become a public company, you should get a professional manager. You're just the entrepreneur. You don't really know how to run a business. You should back off.' I happen to think that is complete bull. If you're competent enough to run it yourself, there's nobody who knows better than the founder what needs to be done," he said in the 2002 interview.

Thalheimer left the Sharper Image in Sept. 2006, following a period of declining sales. He was replaced by Jerry Levin as an interim CEO, who ceded the role to Steven Lightman in March 2007. Last week, Sharper Image dismissed Lightman and hired turnaround specialist Robert Conway as its new CEO.

A representative of Sharper Image did not respond to calls seeking comment.  To top of page

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