According to a this summarized report from Ben Unglesbee, reporter for Retail Drive, Sears was not just a household name, it literally put its name on houses. It pioneered direct-to-home and department store retail and sold everything from clothes and washing machines to cars and houses. But in 2017, customers see understaffed and poorly maintained stores, while analysts and other observers see a company undergoing a slow motion liquidation outside of bankruptcy.
Much of the retailer's prized assets have been stripped away and sold off, including the sale of the lion's share of the company's owned real estate. Sears also shocked the retail world earlier this year when it sold the popular Craftsman tool brand to Black and Decker for about $900 million.
With each store closure, asset sale and layoff, says the report, Sears is reducing its imprint on a world with little shortage of retail options, from rival department stores and off-price merchants to general merchandisers and e-commerce retailers.
According to Eddie Lampert, says the report, the hedge fund mogul and Sears CEO, after merging Sears and Kmart in the early 2000s, though his ESL Investments fund have provided emergency financing to Sears and hacked away at the retailer's cost structure, the company still faces long-term liquidity challenges that show no signs of abating.
The report says that, so far for the year, Sears plans to close 270 stores, including 49 Kmart stores. All told, Sears has cut its store footprint nearly in half since 2012, from 2,019 stores to fewer than 1,200 once all planned closures are completed this year.
The company has also shed more than 500 corporate jobs thus far in 2017 in an effort to further reduce costs, says the report. Greg Portell, lead partner in consulting firm A.T. Kearney’s retail practice, said Sears’ most recent staff cuts are not worrisome as long as they are part of, says Kearney, “a known path,” rather than a reaction to an unexpected event.
“It’s been a long, slow trainwreck at Sears,” Ken Perkins, president of retail research firm Retail Metrics, told Retail Dive. On the one hand, asset sales, corporate cost cuts and cash infusions from Lampert and his hedge fund have all helped stave off bankruptcy, according to Perkins. But “the cupboard is becoming increasingly bare” in terms of assets left for Sears to sell off.
Sears is struggling to give shoppers a reason to walk through its doors. According to data from Perkins’ firm, Sears’ sales growth has lagged behind that of the struggling department store sector as a whole during nearly every quarter since 2008.
“Given how competitive the entire retail landscape is, where you have a company like Macy’s, which is much better positioned just in terms of national brand… product offerings, cleanliness of stores, investments in IT and ecommerce efforts… all things Sears hasn’t done, and even they are having a tough go of it and shuttering 100 stores. “…there’s really just no light at the end of the tunnel [for Sears… It’s only a matter of time before the lights go out,” Perkins said. “There really isn’t a way forward. … I don’t see how it can possibly survive long-term.”
So, asks Unglesbee, what’s ahead for Sears? The report continues, saying bankruptcy is still a very real possibility. Fitch’s Silverman said his firm still sees risk that Sears could default in the next year or two despite several restructuring moves this year. “The company continues to need $2 billion in liquidity every year to fund EBIDTA losses, basic maintenance, capex, pension payments, debt payments and other fixed obligations,” he said. “While some of the moves they have made this year should be able to help the company operate in 2017, in our analysis, they have not changed the company’s long-term picture.”
While Sears is essentially liquidating the company at a pace that rivals some bankrupt retailers, things could still get worse for the company, its employees and customers in a potential bankruptcy. Silverman noted bankruptcy can impose onerous limitations on retailers. It can also allow for a quickened pace of store closures that would cut even more store jobs and at a faster rate. Vendors would likely become even more reluctant to sell to Sears. Customers could lose some ability to return merchandise and have products under warranty fixed.
“All counterparties of the business are in better stead outside of bankruptcy,” Silverman said, although some have pointed out that Lampert and his hedge fund could fare better than other stakeholders in bankruptcy.
Greg Portel, Partner, A.T. Kearney, thinks Sears’ shrinking sales today look worse in the context of its former stature, and that the retailer could still secure a place in the world for itself if it executes a downsizing strategy carefully. Portell points out that for all the talk of Sears’ struggles, it still does $22 billion in sales, little more than half of what it did five years ago. He can imagine a smaller Sears that's focused on categories strong for the retailer, such as home goods and low-priced apparel, could succeed. “Imagine if Sears said, ‘We are going back to our roots, we’re going back to serving rural markets in retail deserts — that’s entirely possible.”
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