4/17/2012 7:47 PM ET|
Why Sears is on its last legs
More store closings and key departures have some wondering if the long-struggling icon is finally going away. Despite turnaround efforts, it is dying -- slowly. Here's why.
Founded as a catalog business by a railway clerk in 1886, Sears firmly held its ground as an iconic retailer in the lives of U.S. households for more than a century.
Any kitchen in middle-class suburbia may well have a Kenmore appliance humming in the background. The car in the garage might fire up with a kick from a trusty DieHard battery. I'll always keep my Craftsman tool set as a reminder of my father, who gave it to me for a birthday present years ago. Besides, those tools are good.
Now though, thanks to a combination of neglect, mismanagement, a weak economy and the ever-changing dynamics of retail, the unthinkable may happen. After years on death watch, Sears Holding (SHLD) may actually fall -- joining the ranks of retailers like Borders and Blockbuster as mere entries in the archives of Wikipedia.
A new round of store closings was recently announced. Key executives are leaving. Sales have been in steady decline for years. These are not good signs.
"I don't think Sears is viable. I don't think they can survive in their current state," says veteran retail sector financier Howard Davidowitz of Davidowitz & Associates, who has advised retail greats like Wal-MartStores (WMT) founder Sam Walton over the years. "Too many things have gone off track. Too many customers have been lost, and it's too expensive to bring them back."
A turnaround that tanked
In short, under the management of hedge-fund kingpin Eddie Lampert of ESL Investments, which took over the show in 2005, a lot of sins have been committed at Sears. Redemption may not be possible.
"It's too late. Something different has to happen to the company, and I honestly don't know what it can be," says Davidowitz.
Goldman Sachs analyst Adrianne Shapira has a $27 price target on Sears stock, which recently changed hands for $59. In other words, Shapira is forecasting a decline of more than 50% from here -- because she's not convinced a turnaround will play out, despite a smattering of reforms by the retailer.
Of course, Sears has a different view. The company believes using technology to improve the shopping experience, such as arming sales staff with iPads to carry out research on the floor for customers, a new loyalty program called "Shop Your Way Rewards," and improving merchandise, among other things, will bring its core customers back.
And there's value in those powerful brands: Craftsman, Kenmore, DieHard and Land's End. As for bankruptcy -- a clear risk at a retailer that's posted six straight years of sales declines -- Sears believes financial wizardry will keep the wolf from the door.
Some investors agree; Sears was actually the best performing S&P 500 stock in the first quarter of 2012.
They may be right, but such financial wizardry -- or the use of tactics like asset sales and balance-sheet adjustments to drain off cash -- goes only so far. It's also a big part of what got Sears in trouble in the first place.
For the past seven years, Sears and Kmart (also owned by Sears Holding) has been in the hands a of hedge fund manager whom many consider to be a financial genius, Eddie Lampert.
The problem is, he's been treating Sears more like a hedge fund than a retailer, say critics. And that simply doesn't work in the highly competitive world of retail. Instead, it leads to one sin after another, and the sins build on each other until - poof! -- an iconic retailer hits the endangered-species list.
Now, I don't think Sears will go bankrupt or close its doors overnight; Lampert has the financial clout and skills to keep it going. More likely, the retailer may simply keep getting whittled down, as Lampert continues to hive off stores, leases, brands and other assets to try to deal with ongoing sales declines. Sears announced 120 store closings late last year, and more than 60 more last month.
But in retail, you can't shrink your way to success. This is why retail experts like Davidowitz now question the viability of Sears.
Here's a look at the five sins of Sears, and how the company is trying to repair the damage.
Sin No. 1: Cutting investments in stores too much
Soon after taking over, Lampert started reducing investments in stores to support cash flow at a time when the recession was hitting cash flow hard at many other companies. From 2007 to 2009, capital investments at Sears declined 37% to $361 million, but cash flow held steady. This may have been some great financial wizardry, but it left stores in shambles -- and customers noticed, say critics. They stopped going.
"Lampert said it was a bad investment to invest in the stores," says Paul Swinand, a Morningstar analyst who covers retail stocks. "That's like saying in the airline business, it's bad to buy planes. That's the wrong way to run a business." in 2010, Sears was investing an industry low of $1 to $2 a square foot in stores, calculates Swinand.
Lampert used the cash to buy back Sears stock, and a lot of the purchases were at prices much higher than where it now trades. "Sears, Kmart -- they're both wrecked," says Davidowitz. "This was a guy running a hedge fund, not a retail company. The long-term impact of what he is doing is catastrophic."
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I loved Kenmore and Craftsman. I only had those appliances and tools, but now, other companies make them – they are not the same. I spent over $1000 for a fridge and the warranty was going to cost around $300 starting immediately. That is embezzlement. How about taking pride in your product.
Now if you buy a product from them and call the service dept. they want to charge you for giving you information wtf is that all about?
I use thier wood working tools exclusively for the price and always being able to get parts for them, but like all equipmeent quality has gone down.
Also like other businesses the sales folks don't know s--t about the things they sell. I remember a time in my life that sales people, especially car sales persons used to know everything about the product.
Quality has gone downhill. Craftsmen tools have always had the great warranty. The difference is now you have to use it. Sockets break, ratchets fall apart and don't lock direction, Years ago it was nice to know if a toll broke you could get it replaced. Now you know when you use a toll a few time you have to have to replaced due to it falling apart.
Sear is also trying to be trendy with the Kardashians...Proudly I have not stepped foot in a Sears store since they teamed with this trash.
Offer a good product at a reasonable price, quit with the low quality crap, and stay away from famous for nothing garbage that will disappear soon, and bring back good customer service. Go back to what made Sear successful in the first place...or get out of the way and close up.
The problem with these stores like Sears, Kmart, and JCPenny is not only management but the decision to eliminate what made them successful, the print catalog. I am sorry, but technology is not the ruler when it comes to shopping. When they quit printing catalogs they basically sank the ship that kept them afloat, alienating a great deal of consumers.
Another problem with Sears is they have sold out to the Asian markets. Craftsman tools are pricey and made overseas nowdays. They started selling some knock off brand that was less expensive which really decreased the image of a quality tool provider in the eyes of consumers. With their prices so high now, those who need the tools can purchase from Snap-On or Mac and get door service at pretty much the same cost.
It is sad that all these so called "executives" who just migrate from one company to another, collecting high salaries and stock options for no good to anyone but themselves, are destroying the companies that have made America great. Time we gather the Executives and the Congress and ship them all overseas and let Americans take back our country!
if sears start making most of the tools in the usa,i might go back to them.I am fed up with buying all this imported tools made you know where,that are like disposable tools.band saw less than 1 year,chain saw 1 year ,and no more parts so it goes to the scrap pile.and so on.and so on.
also it might help the economy big time.More Americans making american goods.
Kmart bought out Sears, Sears jumped their rate on credit cards without notice, and pulled my credit card after 10 years, never late mostly paid off within 6 months of a major purchase. Where was the loyalty from Sears? Will not shop with them no more and they need to go down the tubes
The problem with our Sears store, was and still is they never have any big items in the store. No refrigerators no dishwashers no washing machines. We can order it and get it to you in 5 days. They lost alot of business with us because we went there first, only to hear we can order it. I was a very loyal Sears customer for years and I love my craftsman hand tools, shop tools, garden tools. As a matter of fact if it isn't a craftsman tool I wont use it. I got tired of busting my knuckles with crappy tools. So to sum this up Sears get some stock in the store I want to take it home today!
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