Sears culls network
Sears, America’s worst department store chain, is to close another 120 stores in what must be a last gasp bid to stay alive.
That’s a whole 110 more stores than the company previously forecast it would have to close and is the result of poor sales over the peak retail season which kicked off after Thanksgiving.
The company, which also operates the Kmart business in the US, saw its share price fall 27.2 per cent. The stock has plunged 65 per cent in value since its 52-week high last February.
Sears, which grew into a bricks and mortar business after at one time being the world’s most famous mail order company, has failed to modernise over the last decade. Its last major survival strategy was to acquire the equally underperforming Kmart business.
Today, most Sears stores are bereft of customers, offer no point of difference to rival department store chains. “There is no reason for anyone to go to a Sears store,” as one US analyst summed it up succinctly after the announcement.
Sears does not lead on price, service, range or value.
Shares are now at their lowest level since December 2008. The locations of the stores to be disbanded will be listed at www.searsmedia.com. The previous estimate was that only 10 stores would have to shut down in the last quarter of the year. The drop is 65 per cent since a 52-week high last February.
In the eight weeks to Day, Kmart sales were down 4.4 per cent year on year, while Sears’ US store sales were down six per cent.
While 120 stores may sound a lot to Australians, the two brands have a total of 2177 megastore sites in the US, so after this latest round will still boats more than 2000 stores.
EBIT earnings are expected to be less than half of the $933 million figure in the last quarter one year ago.
Wall Street analysts predicting a lot more stores will have to be closed yet if the company is to survive. In its present operational format it has no answer to the strength of Walmart’s market share and buying power, or the convenience of Amazon. They criticise “a combination of bad locations, unattractive stores and humdrum merchandise”.
While rival department store chains such as Macy’s, JCPenney, Target and Walmart invested heavily in store renovation, remodelling and product range revitalisation, resulting in increasing sales, Sears simple sat back and hoped its iconic brand heritage would carry it through. The rot is now so deeply entrenched, the customer base so eroded, it is hard to see how the company can recreate a sustainable business model.
Macy’s invested US$505 million last year in modernising its Macy’s and Bloomingdales stores. Sears, with a network 10 times the size, invested just $441 million.
Meanwhile, the company is borrowing cash to keep itself afloat. The slide of cash and cash equivalents has been steady since October 29, when it reported a figure of $624 million, compared with $790 million one year before. Sears had $483 million of borrowings outstanding as of December 23, compared with zero a year earlier.
CEO Lou D’Ambrosio has blamed the state of the economy for the company’s current state of affairs, but he admits Sears failed to adapt to the conditions with the consistency or speed necessary.
Sears has been in an downward spiral since the 2005 $11 billion merger of the two chains. It is now controlled by hedge fund manager Edward Lampert, who has reportedly seen the value of his investment plummet from $8.5 billion in April 2007 to just $2.25 billion now.
Analyst Credit Suisse’s Gary Balter is blunt about the company’s prospects: “We do not see how they can dig (themselves) out of these problems,” he said in a report.
We leave the last word to a report by Brian Sozzi, an independent retail analyst, who visited Sears in Bayshore at the peak of the Christmas trading season: On one of the busiest days of the retail season it was “deserted,” he said. Sears Plattsburgh, in the northern part of the state, the picture was identical.
Sears management, he says, is leaving the Kmart and Sears brands to “die on the vine” by neglecting the business.