Sears: It’s even worse than you think

The only thing worse than witnessing someone fail, is hearing the denial that pervades their explanations of why things are going to be so much better in the future.

With Sears Holding’s most recent earnings announcement we get yet another quarter of abysmal results and yet another  round of “trust me honey, I can change” assertions from management. Don’t buy it.

Sears was struggling mightily with relevance and profitability when I was still in senior management there more than a decade ago. In the intervening years–despite a merger with Kmart and numerous revitalization experiments–the company has moved from mediocre to bad to just plain sad. Unfortunately, we must now conclude that Sears has zero chance of surviving in anything resembling its current state and size. Given this tragic reality, I recently called for the company to stop the insanity and liquidate ASAP.

While my post was deliberately provocative–and more than a bit hyperbolic–it illustrated two fundamental and important points. The first, that Sears cannot and will not be turned around and therefore the highest value for shareholders is through an orderly liquidation. The second, more urgently, is that the underlying assets continue to decline in value and the sooner their break-up value can be realized, the better.

Last week’s earnings announcement only amplifies my argument–and suggests that things are even worse than most people think. Here are a few points to ponder.

  • Traffic continues to wane at malls and department stores as shoppers increasingly favor online shopping. This trend is sure to continue in the aggregate and bodes poorly for the underlying value of Sears real estate.
  • While they are still far from turned around, JC Penney is on a strong trajectory and beginning to win back customers lost during the Ron Johnson era. A resurgent Penney’s is a growing problem for Sears efforts to improve its soft-lines business.
  • Sears’ much vaunted “Shop Your Way” is clearly making things worse. Sears has flogged this very mediocre rewards program as a transformative strategy. While it’s theoretically helpful in building a customer data asset and enhanced personalization capabilities, all it’s done in practice is give a growing majority of customers an extra layer of discount, without moving the dial on retention or share of wallet. The more people who join, the worse margins get. With its cash balances dwindling, Sears simply cannot afford to keep buying sales.
  • The value of Sears major private brand assets (Kenmore, Craftsman, DieHard) is intrinsically linked to their channel performance, which continues to deteriorate. These brands are also much stronger with an older customer. Here too, Sears does not have time on its side.
  • Lack of investment and a shrinking store base is making things worse. Sears abject failure to invest in their stores to retain any measure of competitiveness has accelerated Sears decline. While some store closings and realignment of space is necessary for virtually any retailer, Sears aggressive down-sizing points to a value proposition problem, not a fundamental real estate issue. Dramatic further shrinking risks de-leveraging the expense structure, losing the support of key vendors and ultimately makes it harder to be top-of-mind with consumers.
  • They’ve yet to find a buyer for Sears Canada. Why? Potential investors see it as a real estate play, not as a going-concern. Bottom line, Sears is very unlikely to get close to their asking price.

Dead brand walking.



Full disclosure: I have a long, albeit modest, position in JC Penney. 

5 thoughts on “Sears: It’s even worse than you think

  1. As a former employee, I keep shopping Sears because I (still) feel loyal to the brand and am always hopeful that the next visit will be different and the advertising would have me believe that they have great product. More often than not, I leave with nothing. The stores have limited product that is shoddily merchandised. Associates cannot answer the most basic of question. The “loyalty” program is a demand that one provide a phone number or not receive the advertised price. Sadder than sad to walk into a Sears store today.

    1. Sears’ trouble is clearly a internal management issue. The internal display of merchandise is extremely disorganized. Employees were discouraged and untrained. The loyalty program is seemly another layer of discount. The shoppers are just coming for cheaper price than Wal-Mart. There is no way possible for current management to do something except an outsider to make dramatic changes. But it seems impossible. Let us say goodbye to Sears shortly.

  2. I worked for Sears for over 30 years and retired thinking that I would love that company until the day I died. My family grew up with Sears and my mother worked for Sears, it was a household name. To put it bluntly I have never been into a Sears store since I left almost 9 years ago. All I hear from friends is I can’t believe you worked in those awful places. The stores are poorly run and they look terrible. I once use to be proud of Sears and what they represented now I do not even tell people where I use to work, Fast Eddy is just trying to make a buck off the backs of people that were once loyal to Sears. I can not believe how many of my friends left after I retired due to the fact that the company is being poorly run. What ever happened to loyalty? Ask fast Eddy he seems to have the answer to everything. We will always remember the man that ran that once GREAT company into the ground.

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