Yesterday Sears Holdings reported its worst sales performance since it was formed through the merger of Sears and K-Mart. In fact, the Sears brand has not had a positive annual comparable sales increase in a decade (read that again and let it sink in for a moment).
10 years ago, when I was briefly the head of strategy at Sears (insert your own joke here about oxymoronic corporate titles), it became all too clear that we were competitively disadvantaged in EVERY major product category in which we competed and that radical action was required. Over the next couple of years, store operating costs were slashed, Lands’ End was acquired, an off-the-mall version of our full-line store was designed and rolled-out and every product category had major changes to its merchandising strategy. The results were initially pretty good, but fundamentally we did little to meaningfully close the competitive gaps.
Not long after I left, Sears merged with K-mart (apparently on the premise that the combination of a mediocre company and a lousy company would yield a great company). During the past six years, Sears’ has jettisoned assets, cut costs, bought back shares and pulled various rabbits out of the hat to create the illusion that shareholder value was being created. Stunts like selling Craftsman tools through Ace Hardware never had the potential to be more than a rounding error; Home Depot sells more tools in a good weekend than Sears will ever sell through Ace Hardware. The cross-selling of brands across the Sears and K-mart formats provided a short-term bump, but has done little to alter the continued loss of market share.
Now, faced with a dearth of ideas about how to get revenue going, Sears is talking once again about more cost cutting. Sears does not have a cost problem, it has a revenue problem. But apparently when all you have is a cost hammer, everything looks like a nail (by the way, that metaphorical hammer was bought at Lowe’s).
If not already there, Sears is on the precipice of an accelerating downward spiral. Cutting costs further makes an already bad store experience even worse. The continued loss of volume makes key vendors less likely to partner with Sears and more likely to focus on retail partners that are winning. As volume drops, Sears loses marketing and supply chain efficiencies.
So watch while Sears Holdings Chairman Eddie Lampert tries to pull another rabbit out of the hat through more cost cutting, another wave of share buy-backs and lame celebrity clothing lines.
But don’t buy it. It’s smoke and mirrors. It’s Bernie from “Weekend at Bernie’s” being propped up a bit longer until we realize he’s dead.