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honey, we have to talk about sears

A little while back, I asked how Sears was able to survive as a firm. Once a titan of the American economy, Sears was now a shell of its former self. From a write up in Salon (!) magazine:

Sears Holdings, which owns Sears and Kmart, reported on Thursday a loss of $748 million for the three months ending on Oct. 29. This is the company’s 20th consecutive quarterly loss, and worse than the $454 million loss the company posted in the same period last year. Revenue fell nine percent last quarter to $5.21 billion. Same-store sales, a key retail metric, dropped 10 percent at Sears and 4 percent at Kmart. The company lost $1.6 billion in the first ten months of the year, compared to $549 million in the same period last year, according to its regulatory filing.

These grim numbers were announced a week after the departure of two top-level executives: James Balagna, an executive vice president in charge of the company’s home-repair services and technology backbone, and Joelle Maher, the company’s president and chief member officer. Former Goldman Sachs banker Steve Mnuchinalso resigned from the Sears board last week after President-elect Donald Trump nominated him to head the Treasury Department.

When we discussed Sears, CKD suggested the issue wasn’t firm profitability. It was the relative benefits of bankruptcy court vs. a massive real estate sell off. If so, then the pattern of executive hires and behaviors makes sense. But that raises a deeper point. Why didn’t Sears keep up with the rest of the retail market?

Jeff Sward, founding partner of retail consultant Merchandising Metrics, doesn’t share Hollar’s optimism.

“What does Sears stand for?” Sward told Salon. “Sears unfortunately stands for so many different things that I don’t think there’s anything that’s a standout. I would go to Sears for appliances and tools, but I’ve certainly never thought of them as a headquarters for apparel.”

Sward says the issue isn’t that Sears doesn’t have good products and competitive prices. Instead, he said, the problem facing Sears is that it isn’t the first choice for buyers of any of its core product categories. If consumers need tools, they go to Home Depot or Lowe’s. If they want outdoor or work apparel, it’s Dick’s Sporting Goods, not Sears. Electronics and home appliances? That’s for Best Buy. And who’s buying apparel and shoes at Sears?

The bottom line is that the department store model of the early 1900s is incredibly hard to sustain in the modern environment. Where discovery of the “big box model” by Home Depot and the online model of Amazon, a lot of department store chains either folded or refocused. Sear, with way too much real estate and sluggish executive team, couldn’t make the pivot. Not surprisingly, you then attract investors who are more interested in hollowing out the firm, like the Sears/Kmart holding group that also took on Borders before it died.

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Written by fabiorojas

December 12, 2016 at 12:36 am

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