Consolidation · Reinventing Retail · Store closings

Sears: Dead brand walking

Recently Sears Holdings made several interesting announcements. First, it declared it was closing 63 more stores, in a continued false notion that it can shrink itself to prosperity. This is in addition to the 358 Sears and Kmarts already shuttered in 2017. Then it issued a press release detailing steps it’s taking to improve its financial structure, wherein it included operating results for the quarter. Despite over a decade of strategic restructuring, huge investments in its membership program and digital capabilities, closing hundreds of its worst locations–not to mention massive store closings on the part of many of its direct competitors–the company expected to report comparable store sales declines of 15.3% for the quarter and a loss of at least $525 million. Yikes!

Following all this, in what is likely to win the award for the most obvious prediction by a Wall Street investment analyst in modern history, Bill Dreher of Susquehanna opined that “Sears may never be profitable again.”

So while Sears apparently has a few folks willing to believe something good might still happen, the company continues to execute what I have long called “the world’s slowest liquidation sale.” In fact, Sears continues to act as if we’re all either gullible or stupid. Or perhaps both.

Despite growing signs of its imminent demise–or at least a complete collapse into a holding company with a small and decidedly mixed bag of residual assets–Sears Holdings CEO Eddie Lampert continues to put lipstick on the pig. A couple of weeks ago he took the Wall Street Journal to task for a rather harsh story by posting a retort on the company’s blog, in which he once again neglects to discuss anything that would meaningfully improve customer relevance, but goes to great lengths to highlight moves that are clearing perpetuating, if not accelerating, declining performance. And in what may be the surest sign that the company’s beleaguered CEO has no capacity for irony, the day after the company shared its horrible quarterly performance Sears announced it was opening two (count ’em two!) small format appliance & mattress stores.

The news at Sears went from bad to sad a long time ago. As I have recounted before, back in 2003 when I was part of the senior team working on trying to fix the department store business, it was abundantly clear that Sears’ concentration of assets (particularly for its home business) in regional malls was a significant and growing liability. It was also apparent that Sears had much more of a revenue problem that a cost problem. As we sit here fourteen years later, average store sales productivity has declined in virtually every quarter since I moved on from the outhouse to the penthouse (Neiman Marcus Group) and beyond. The major appliance and home improvement businesses, which once were incredibly profitable, are largely decimated. Years of cost cutting have made Sears’ stores an embarrassment. Market share continues to plummet.

In the spirit of full disclosure, our team did not come up with a compelling plan to turn around Sears, so for me it has always been an open question whether anybody could have saved them. I was certainly neither smart enough, nor powerful enough, to make it happen. But I have always hoped Lampert and team would figure it out.

In any event, at this point any notion that Sears can be saved in any way remotely resembling a major national retail brand is the pinnacle of wishful thinking. Yet some people still seem to hold out hope. It’s time to let that go.

Dead brand walking.

 

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here

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Consolidation · Luxury · Store closings

The Kors/Jimmy Choo Deal May Usher In A New Era Of Retail Consolidation

Last week’s announcement that Michael Kors would buy luxury shoe and accessories brand Jimmy Choo comes on the heels (heh, heh) of Coach’s $2.4 billion deal to acquire Kate Spade. While this particular move is not in and of itself a catalyst for more merger & acquisition activity, there is a growing sense that various forces are converging to drive an acceleration in retail industry consolidation.

The biggest driver is the harsh reality that organic growth is getting harder and harder to come by. Most sectors of the luxury market have stalled and retailers across a spectrum of formats and price points are being confronted with the need to downsize their physical store footprints amidst retail overcapacity and a fundamental shift in consumer spending behavior. Many companies–and Coach and Kors are good examples of this–have hit a wall in how far their core brands can be stretched and expanded. Strategic acquisitions offer the potential to address different price points and/or reach new demographics that are not easily accessible by their primary banners. In Kors case, it looks like the Jimmy Choo deal will not be their last.

Another driver is the underlying dynamics of operating in today’s ever shifting, fast changing retail world. The power is shifting way from brands toward the consumer, away from retailers toward product brand owners, away from physical toward e-commerce and away from traditional mass market ways of reaching consumers toward all things digital. For many brands, a fundamental reinvention of their model is required and that necessitates new skills, increased scale, more speed and greater agility.

Accordingly, some recent transactions have been motivated by a desire for the acquiring brand to inject new talent and ideas into a moribund culture. Others are driven by a classic “make vs. buy” decisions or spurred by more opportunistic situations where a struggling player runs into the arms of a cash rich suitor. Walmart’s recent activity seems to be a little bit of all the above.

The aborted discussions between HBC and Neiman Marcus might be more illustrative of what the future holds. More and more, I expect to see traditional players come to the realization that their sector must be consolidated and rationalized as top line growth opportunities evaporate and it becomes clear that meaningful earnings growth can only come from taking out capacity, mitigating competitive intensity and better leveraging scale and scope. In some cases these transactions will come together through proactive, forward thinking leadership. Others will be triggered by the opportunity to acquire assets at fire sale prices when a competitor is struggling or files for bankruptcy.

Either way, with the ripple effects of disruption only growing stronger, the pace of activity is likely to quicken considerably. And it just may turn out that store closings are not the only big retail story this year.

A version of this story recently appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.