5 reasons Sears should liquidate ASAP

As a former Sears senior executive I’ve followed the once mighty brand’s journey from mediocrity to bad to just plain sad. What a long strange trip it’s been.

When I left in late 2003 we were gaining traction in our core full-line department store business and piloting several important growth initiatives. To be fair, whether we could pull off the necessary transformation was highly questionable. But one thing is now certain. The subsequent actions taken under a decade of Eddie Lampert’s leadership have assured the retailer’s demise.

For some time now, I’ve been referring to Sears as the world’s slowest liquidation sale. After yesterday’s annual shareholder meeting, it is time to stop the charade and embrace the inevitable. Here are the 5 reasons Sears needs to throw in the towel:

  • No value proposition. No reason for being. After all this time Lampert has still failed to articulate a vision of why and how Sears will fight and win in the intensively competitive mid-market sector. In fact, just about every action that has been taken over the last 10 years has weakened Sears competitive position. And the horrific results make this plain for all to see. The world does not need a place to buy a wrench and a blouse and a toaster oven.
  • The competitive gap continues to widen. In every major product category Sears has lost relevance (and market share) while key competitors continue to improve. In hard goods, Sears is fundamentally disadvantaged by their real estate and as a practical matter there is not enough time nor capital to fix this core issue. In soft lines, they have been given a great gift by the recent foibles of JC Penney and Kohl’s and yet still woefully under-performed. Both competitors have key advantages relative to Sears. As they start to execute better they will win back the share they lost.
  • Digging a deeper hole.  For Sears to be a successful omni-channel retailer their core physical stores have to be compelling. Sears has under-invested in their brick and mortar stores for years, so not only do they have a lot of catching up to do, they have to develop and roll-out a new store design and related technology support. One need only to look at the capital that successful retailers like Nordstrom and Macy’s are investing to get a sense for the magnitude of what will be required. There is simply no way for Sears to earn an adequate return on this level of investment. More practically, Sears can’t possibly fund this.
  • A leader who is either a liar or delusional. The results speak for themselves: Lampert doesn’t know what he is doing. After 28 straight quarters of declining sales–let THAT sink in for a minute–he has the chutzpah to assert, among other things, that Sears is investing in where retail will be in the future (huh?), that the “Shop My Way” member program is some huge differentiator, that having fewer, less convenient locations than the competition is a good thing and that Sears can compete effectively with Amazon. All of these hypotheses would be laughable if the implications were not so tragic. Whether he really believes any of this is, or is merely spinning the story to buy time, remains an open question. But regardless of whether he is being disingenuous or whether he is nuts, you’d be crazy to give him your money.
  • Valuable assets get less valuable every day. There are pockets of meaningful value within Sears Holdings. But proprietary brands like Craftsman, Kenmore and Diehard are not sold where the majority of customers wish to buy them. Ultimately the brands are only as good as their distribution channels. Simply stated, as Sears and Kmart continue to weaken, so do the value of these brands. Side deals with hardware stores and Costco barely move the dial. Sears real estate is also cited as a major source of value, yet the real estate portfolio is a very mixed bag: some great properties in A malls, but lots of locations that are mostly liabilities. Regardless of how this all nets out, it is becoming increasingly clear that, on balance, mall-based commercial real estate has lots of supply, but relatively little demand for new tenancy. As retailers continue to prune and down-size their locations it is difficult, if not impossible, to make a case for Sears real estate value increasing over time.

The uncomfortable and sad reality is this: Sears has zero chance of transforming itself into a viable retail entity. Any further investment in this sinking ship is throwing good money after bad. Stripping out the idiosyncratic technical reasons for gyrations in the Sears stock, the underlying true company economic value declines each and every day. There is no plausible scenario where this trajectory will change.

Frankly, it’s been game over for some time now. It’s only Sears legacy equity and Lampert’s ability to pick at the carcass that has propped up the corpse.

Let’s stop the insanity.

 

 

12 thoughts on “5 reasons Sears should liquidate ASAP

  1. Pingback: Why doesn’t Sears just die already? | Tell It To Al | An unconventional eye on business.

    • Lands’End has a sound, albeit mature business model. To grow they need to expand their brick and mortar distribution as well as contemporize the brand and attract a younger customer. I think the separation from Sears will ultimately be good in the long-term, though may pose some short-term problems as they look to replace the declining Sears volume.

  2. As a retail/business geographer I found this post interesting. While location is important in the real estate world, in the retail world a brands merchandising is just as important if not more so. We saw what a former Apple executive did to JCPenney, and they alienated there core customer base. Based upon what you have seen in the retail industry do you think JCPenney can make a turnaround under Mike Ullman?

    • I traveled to Dallas about a month ago and have a coffee at a Starbucks near JCP headquarter. I have a chance talk to a JCP guy having coffee in Starbucks. He told me that there was a exodus after Ron Johnson left the business. There is also a high turnover rate and they are looking for eliminate the vacancy..So, it maybe their last 18 months.

  3. What has ruined Sears for me is uncompetitive appliance sales. I have bought all of my major appliances from Sears for decades based on price, quality, free delivery and financing when needed. Now most of that is all gone and I buy from Home Depot, Lowes, or Best Buy.

    K-Mart prices are worse than drug stores and supermarkets so why bother.

    Both chains are run down and now look more like second rate dollar stores.

    Shop My Way is compelling when it offers extra discounts, but the points earned from ordinary purchases are irrelevant. Their Christmas promotions did bring me in but not since.

  4. Two years ago, China-based Wanda Group bought the cinema chain AMC Theatres. They turn that company around within a year. Do you believe that a foreign business will come to retail industry to buy Sears or troubled JC Penney in a short time?

  5. Imagine 112 consecutive months of declining sales. I think your conclusion that there is “zero chance transforming itself” omits the creative solution you suggested sometime earlier: Sears Water Parks.

  6. Pingback: Sears: It’s even worse than you think | Steve Dennis' Blog

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