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."
VIDEO ON MSN MONEY
I've been reading these comments being that I am a Sears employee currently. I've been an employee for 7 years. I was there before the merger with Kmart.We are not happy with no company leadership nor values. I try to give the best service I can for each and every customer that enters my area. I say hello as soon as see someone enter and thank them when they leave. True, working there is a very hostile work environment.For some of us, Sears is all we have for employment. I'm turning 40 this year and where i live, unemployment is through the roof. I apologize to everyone whom has had a bad experience. There's not a company on earth that can please everyone. i read that we employees don't know the products. Sears fires and hire so quickly because the demands for getting numbers is so intense. How is someone supposed to know the stuff if they are new? Plus, if you are asking a cashier about something, then obviously you are going to get a response you will not like. Floor people are the ones to ask.
Sears is dying and we employees know it. I presented ideas on how to change things and it was quickly dismissed. The people in the Sears Tower have no idea what goes on in the stores. But, they care less about the work staff than the consumer. You try to survive on a 14 hour work schedule making $6 plus commision with child support , utilities, and rent. Finally, Sears employees are also customers. So, we understand your points better than most because we get it from both sides of the fence.Consumers come rarely to shop,but we employees are there as our schedule permits. So, if you don't like sears, then I'm truly sorry to lose you as a customer. 130 years of being a retail icon are ending. Without Sears, there wouldn't be Discover card, Kenmore, Craftsman, Allstate insurance, the catalog, etc..What has Walmart provided society but a gateway for the chinese government to grow? I'm not here to defend Sears. I'm here to defend the workers who get beat up , day in and day out, to make $6 and try to make customers feel important when they visit. Instead of trying to be walmart, Sears needs to protect and defend the legacy of 130 years in business.
Sears was the store for young couples starting out, because it was easy to get credit there. It helped a lot of families establish credit. The prices were reasonable and the Sears branded products were reliable.
Sometimes companies just lose their way. It happens when outside managers are brought in who had success as cola managers or in some other unrelated business. There is no incentive for low level managers to excel, because the top jobs will go to outsiders. The fault lies with the company directors, who have zero experience in the business.
Sears used to get a lot of our family's money. Almost all of our tools, appliances and equipment were purchased there. And then like everybody else, they started shipping their jobs overseas, and the quality went downhill.
The first time I noticed it was when a friend of mine and I were stripping down his Cadillac 500 engine. He pulled out his brand new set of Craftsman socket wrenches, and attempted to loosen an exhaust manifold bolt with a 1/2" drive wrench. It broke on the first turn. He switched to his slightly smaller 3/8" drive, thinking the other wrench might just be defective, and that one broke on the first turn. He then got into his toolbox and pulled out an OLD ('50s or '60s) Craftsman 1/4" drive socket wrench that his father had given to him; and wouldn't you know it, we finished stripping down the majority of that engine with that tiny little quality made American product.
I could go on and on about the crappy made snowblowers and lawnmowers, and horrible customer service that they are churning out nowadays, but everybody else seems to be doing a good job of that already.
We all need to start demanding that these companies start bringing these jobs back home. This country was prosperous once, and it was because we manufactured our own goods (we even EXPORTED!!! Can you believe that?!) But we can't just build these things here, we need to give a damn about what we're building. People need to start caring about the effort they put into things again, and they need to re-learn about the true pride of accomplishment in creating quality goods.
And these little pukes behind the service counters need to get off their iphones and start learning about the products they are selling. 'Nuff said.
I worked at Sears over 30 years ago. Back then, a customer could walk into a store and get personal help for as long as he/she needed it... no employee looking at a watch, acting bored, talking with another employee... just flat-out good customer service. We were told our customers paid our salaries, and we sure as heck took that to heart. We really liked helping our customers, seeing them enjoy their shopping time with us, and getting to know them as friends.
I bought a lot of furniture back then, and I still have most of it. Heavy wood, it has really lasted throught the years. I can't find anyone who sells furniture like that now. No one. I also bought some of the most beautiful, well-made clothing then, too. Excellent quality. That was Sears' best selling point... the finest quality. "Satisfaction guaranteed or your money back."
Those in charge of Sears now might as well be conducting business down at the city dump. AND I hate how citibank took over the Sears credit card. The interest rates are sky-high, and if everything isn't followed to the letter, you can be hit with exorbitant rates and fees. I always pay about 5 times the minimum payment, yet, since I made one out-of-town payment one day early and didn't realize I preceded the billing cycle's end by that one day, I was slapped with a non-payment fee, some other kind of fee, and a threat of being turned over to collections. I had the credit card for 35 years!!! Never late, ever, and they treat me like this!
I was going to cut the card up and mail it back, telling them to stick it where the sun doesn't shine, but I figured they would get me on some kind of harrassment thing. So... I am going to use it once a year, to charge the smallest thing I can find. Then, I am going to turn right around and return the item. The card will show activity, but they won't be getting a dime from this old lady. I won't mind seeing the last of the "new" Sears. The sooner, the better.
And now Lampert is buying a $40 million dollar mansion off the coast of FL, he has no care about anyone but himself. He won't listen to complaints, there was one lady on a forum who bravely went to Chicago to one of the annual meetings and she pointed out everything that was wrong and what needed to be done. That lady had worked for Sears for a long time, a lot of good it did her, I admire her for being so brave to confront the top man of the company. Sadly, Lampbert did as he always does, pay no heed to those who are dealing with the customers; because money and being called a so called 'genius' has put him at the head of a company he has no business being in. The lady is no longer working for Sears, because you can't talk to someone who won't listen and make needed changes. Sears is over with and hedge funders are nothing but thieves; taking away the lives of those who really do work hard to take care of customers. Because no will stop them of what use is it?
Someday, it will all catch up and it's not going to be pretty.
As a (thankfully) former Sears manager I was told to make sure that none of my employees reviews were more than meets expectations, this way they got a low raise if any. Sears is notorious for telling employees they are giving them something good while taking something else away. Sears employees live at poverty level if that.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market capped the trading week with losses across the major averages. The S&P 500 fell 0.5% to surrender its weekly gain, while the Dow Jones Industrial Average (-0.7%) and Russell 2000 (-0.9%) underperformed. The two indices posted respective losses of 0.8% and 0.6% for the week.
Equity indices were pressured from the get-go after several heavyweights disappointed the market with their earnings and/or guidance, which led to some broader profit-taking. After ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|