Sears, Kmart: Beginning of the end?

As a slide in sales continues, Sears Holdings announces the pending closures of more than 100 stores. And a year from now, the outlook might be just as grim.

By InvestorPlace Dec 27, 2011 10:36AM

By Jeff Reeves

 

While many retailers remain on pins and needles about how their holiday receipts will stack up, there's no mystery at Sears Holdings (SHLD). The company that operates Sears and Kmart department stores has been losing customers and bleeding red ink forever, and the past few months were no exception.

 

So Sears wasted no time in announcing a huge cutback on its store count. Between 100 and 120 Sears and Kmart stores will be closed. The company says $140 million to $170 million will be made as inventory is shuffled out at fire-sale prices.

 

Post continues below.

But more disturbing than the store closures is the context. Sears is losing money, and no profits are expected anytime soon. It makes you wonder if this really is just the beginning of the end for the once-iconic department store.


How bad is it? Well, consumers should know firsthand just by visiting their local Kmart or Sears locations. Fallen flagship brands like Craftsman tools and Kenmore appliances used to be high-quality names for many Americans but have little currency with shoppers today.


Even more damning is the tarnish on the stores themselves. Aging stores ideally could use a fresh design -- and at the least need a good cleaning and some repairs.


Hedge fund manager Edward Lampert and his cronies merged Sears with Kmart in 2005. Lampert began focusing on online boondoggles such as an online marketplace in the vein of eBay (EBAY) rather than acknowledging the power of its legacy brands at physical stores. You can't fault the logic, since online retail is crushing brick-and-mortar sales. But the result is online efforts have failed to bear fruit yet, and existing stores present customers with a rather disappointing experience.


It's a lose-lose situation that has cost Sears dearly.


That's just from a taste perspective, however. The harshest reality for the company is the poor sales numbers that have plagued Sears and Kmart for some time. Sears Holdings has lost money in five of the past six quarters. Even worse: November marked a stunning 19 straight quarters of sales declines.


The icing on the cake is that Wall Street estimates for the company project consecutive quarterly losses in each period through all of fiscal 2013. That means if you're being charitable, Sears will continue to lose money for the next year and a half.


But let's be honest: The reality is that forecasters aren't looking any further than 2013, because that's too far down the road. There's a very good chance that a year from now the outlook might be just as grim.


Sears has yet to determine which stores will be closed or how many jobs will be lost. Management is casting the store closures as an unfortunate event prompted by a bad economy, and that is indeed partly true. Many big retailers like Wal-Mart (WMT) have struggled to find their way as consumers have cut back and are more savvy about getting the best deals. It might sound counterintuitive that the king of low-priced retail would be hurting, but Wal-Mart has suffered for a few years now as smaller discounters like Dollar General (DG) connect with customers and sometimes even undercut pricing at the big guys.


It is indeed challenging for retailers. But Sears is in a class of its own when it comes to losing customers and losing money (it's worth noting that some retailers are booming).


Sales at the company have dropped in every year since Lampert took over in 2005. No wonder shares are off almost 50% year to date in 2011 and almost 70% from the 2010 peak.


To be clear, bankruptcy might not be an immediate concern. Sears doesn't have the crippling debt load that drives companies directly into bankruptcy. But it's certainly on its way. Unless Sears can streamline its operations and find a good way to use funds from this inventory liquidation, it's likely we will see only more store closures in the future and a race to the bottom for this once-storied retail brand.


Not everyone is bearish on Sears. Jonathan Berr thinks a new focus on licensing deals -- such as a Sears partnership with the Kardashians -- can help the company.


But it's going to take more than star power to right this sinking ship.



Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace​​.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.




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524Comments
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I, for one, am amazed that they have lasted this long.  I went to a local Kmart during Christmas and it was cluttered, dirty and really was showing its age; but worst of all in the height of the shopping season they had only one register open and a long line.  Sadly, I and several others dropped the items we had and left.  It will be sad to see Sears go, but in the end they can really only blame themselves.
Dec 27, 2011 12:33PM
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If the CEO of K-Mart/Sears (Aylwin B. Lewis) wants to improve his bottom line and save his company, he needs to begin by anonymously shopping and buying a variety of products, large and small, at a bunch of K-Mart and Sears stores, and then actually using those products for a few weeks or months to see how well they satisfy his needs.

Yes, I know Al, you're above all that, but if you want to continue to be the overpaid CEO of a major corporation, hear me out.

  • Actually buy a Kenmore vacuum, bring it home, and see if it picks up the dirt on your Persian rug.
  • Try buying the replacement bags for that vac and see if you can manage to get the new one into the canister and avoid spilling the full one.
  • Start up a Craftsman snowblower and see how well it handles the foot of snow that just fell in the driveway - then use it all winter and don't have Jeeves do it; do it yourself so you find out if the thing works as it should.
  • Wear those jeans you bought at Sears on a regular basis and see if they hold up.
  • Go to a Sears garage and have a set or tires put on your son's Beemer and have them do a front end allignment as well.
  • Sooner or later, when you get a defective product, return it to a store and see how that experience goes.

Those shopping and consumption experiences will give you insight you cannot get from customer surveys filtered through statistical hocus pocus, store inspections by ambitious underlings, and all the other oblique ways that execs gather information. It's not the economy Al, it's the brick wall that sits between your showrooms and your boardroom. Tear it down and you'll be OK.

Dec 27, 2011 3:19PM
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When they started making "Craftsman" hand tools in China, I quit buying them. I want American made tools and not cheaply made items. I'll gladly pay a little more for better quality, but Sears lost me when they started selling the Chinese junk. I receieved a set of wrenches from my wife last year for Christmas that were made in China from Craftsman and I promptly retunred them to the store for a refund.

 

No wonder they're going belly up. Until we start making and selling our own products in this country again, our economy will never recover.

Dec 27, 2011 12:28PM
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What's really sad is that you don't see any comments about how long a live span Sears has had. Starting in the 1800's as a mail order catalog they brought the modern world to the west. I saw a Sears motor cycle sell on Meccem Auto auction last night that was made in the 60's just like the one my brother order back then.

Everyones talking about their bad treatment at Sears and Kmart - well when was the last time you got the royal treatment at Walmart. At least Sears doesn't specialize in crap made in China. Or maybe your so use to buying Walmarts cheep crap you've forgotten what it's like  to buy a good product. My Sears refrigator is 25 years old and still going strong.  I for one will miss an American icon.

Dec 27, 2011 2:59PM
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So sad about this.  K-Mart is one of the only retailers that continued to offer "layaway" to their customers.  This was a tough Christmas this year due to a divorce, and had it not been for K-Mart allowing me to make payments on my children's Christmas presents, they would not have had the things they did. 

Thank you K-Mart for allowing the blue collar worker to make their kids Christmas happen.

Dec 27, 2011 12:09PM
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Before you know it, the only place you will be able to shop is Wal-Mart and everything will be in Chinese.
Dec 27, 2011 12:49PM
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People THINK that Sears carries "American" brands but that is not true. That is why Sears is sinking. They have done what all the other retailers are doing, turning their backs on American manufacturers and buying foreign products. Who cares about American jobs as long as they can make a penny. PERFECT example...Like the story said. the Sears Craftsman's tools use to be the best tools around...20, 30 years ago. Guess what? Craftsman's drills, saws, etc are Ryobi tools with a black paint job and the Craftsman's logo. This is what has ruined this country. We send all our money out of the country and eliminate factories and jobs. Another example of an American icon that sold out the American people, Webber Barbecues. Webber was an American made BBQ grill that was the one to have 30 plus years ago. I still hear hear the old timers say, "Nothing beats an American Webber grill". Ha The owners sold out years ago to make a lot of money fast. Who cares about all the jobs and quality. Let the Chinese have it. American brands are selling out to foreign companies left and right. It's no longer "Made in America". There is no hope on the road we are travelling. The cup is half empty AND there's a hole in it. Wake up and see the future. It's not, "Oh, everything will be OK."
Dec 27, 2011 4:30PM
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I hope these thousands of workers for sears and kmart find jobs soon after.  I may not like these retailers, but I live in America..and I'm all about adding jobs to America!!
Dec 27, 2011 12:43PM
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I don't understand when people comment on articles like this with things such as "Good riddance!" and "Screw KMart and Sears!  They suck!"  Don't you people have any clue what things like this mean for the USA?  When major retailers close their doors, we all lose.  America is quickly on it's way to becoming a 3rd World Nation with no stores to shop in.  We're all going to be wearing towels and rags pretty soon because there will be no stores to buy products and clothing in.  You can laugh and say I'm crazy but the writing is on the wall.  All you have to do is read it.  This country needs to change the way we do things and we need to change in a hurry because time is quickly running out.  Like a previous commenter said~ "how's that Hope and Change workin out for you?"  Little did we realize that the Change he was talking about meant the changing of America is we know it.  And NOT in a good way.

Dec 27, 2011 11:53AM
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Had Same experience as Sky Eagle during the holidays at Kmart.. the store was crowded with customers and there were 2 checkouts open... I saw several people leave their merchandise in the cart and walk out of the store.  I did the same thing, I seldom shop at Kmart because of that... 
Dec 27, 2011 3:31PM
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Stop buying from China!!  Stop making stuff in China!!  Their stuff is CRAP!!!  No one wants anything from China!!!  It's ruining AMERICA!!!  It's ruining American businesses!!!
Dec 27, 2011 12:42PM
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I see a few complaints about waiting in line because so few are open. It is difficult to hire checkers because virtually no one wants to put up with abusive customers or kids left to roam the store and throw merchadise on to the floor. I don't know about you, but when I was a kid, my parents would have made me pick everything up and re-shelve everything.  My wife has been a cashier for twenty years and the things I detailed happen on a daily basis.  Additionally, most prospective employees in our area can not pass a drug test.
Dec 27, 2011 11:47AM
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I never understood why they ever tried to merge KMart and Sears. KMart was at the bottom of the barrel of stores in my mind and Sears was struggling but could have survived. They brought Sears down to the KMart level rather than bringing KMart up. I worked for sears back in the 70's during their hay day and even back then they were trying to compete with KMart they even tried to make their stores look like KMart. Back then they were the biggest and had a good reputation for their hard lines so they tried to compete in the fashion market bad move. if they had only focused on what they did best I think they would have been OK.

Dec 27, 2011 12:24PM
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there was a great comment about the checkout line!  The idiots that "manage" the store decide to "save" money by cutting back on the cashiers!!!  Look at Scotty's Building Supply.  That was their worst problem, but the high-level bosses never had to stand in line for squat.  So, when Home Depot opened down the street, it was too late for Scotty's to get religion.  The things that kill the giants are the little smooth river stones that hit them right between the eyes-and they never see it coming. 

 

Wal-Mart now thinks it can rape you on price and quality, and you can't do anything about it.  Keep thinking that way-you're the next giant to fall.  NO MATTER WHAT, YOU HAVE TO OPERATE YOUR STORE, LARGE OR SMALL, AS IF THERE WERE AN IDENTICAL STORE ON EACH SIDE OF YOU.  That is, if you want to endure.  Another problem is CEO's who gut the company for quick profits-then, dash off to another job, touting their "success".

Dec 27, 2011 5:22PM
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As a former employee, I will be glad if Sears closes. I worked as a manager for three years there. It was a nightmare. They have no incentive for customers or employees to go into there stores. They use false advertising and have ridiculous mark ups in everything. They have the same sales all the time and will have one tv in store. They waste soooo much paper. The higher managment and corporate are ridiculous. They are a greedy company and want your money not your satisfaction. Practically all the stores are falling apart. That company has been heading this direction for a long time. You will never truly hate Sears as much as I do until you work there. Im sure thats true for a lot of employees. I could go on and on about the facts of Sears. They deserve to close.  

 

Dec 27, 2011 12:44PM
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Personally, if the Kartrashians endorse SEARS they will NEVER see my shopping $.
Dec 27, 2011 3:50PM
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I DON'T THINK PAYING THE KARDASHIANS FOR A LINE OF STUPID STUFF WAS THE ANSWER! GET RID OF THEM, THEY ARE NOT A WHOLESOME  RESPECTFUL FAMILY TO HAVE ON YOUR LABELS.

Dec 27, 2011 3:24PM
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A lot of you have good statements. I for one will miss Kmart. I like that we can still do the lay away. Sears did used to be about quality and the customer, it is seen everyday that is not the case anymore. Instead of shutting down the stores replace the CEO and all the staff in headquarters and start over with ones that actually care about the people in the USA.
Dec 27, 2011 12:50PM
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I stopped shopping at Sears when they put up the department signs in English AND Spanish. We are NOT a bi-lingual country
Dec 27, 2011 2:51PM
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When I was growing up SEARS meant quality and customer service.  We never thought about going anywhere else for appliances.  Recently, we bought a new Kenmore refrigerator and the condensor has broken twice in five years.  I understand sometimes a product may have a problem that's unique to the brand.  What pissed me off was the customer service.  They were just like "that's why you should have bought an extended warranty".  The thing is we did, and it covered the first time but didn't expect it to happen again.  Then, they couldn't get out to look at it for two weeks.  Magically, when I went ahead and purchased another extended warranty, a spot just happen to open up sooner.  We had to wait for the parts to come in after that.  It was a Kenmore, SEARS brand, they had to know it was one of their parts.  Why don't they have better access to parts to their own products?   There was no "Im sorry you are having this problem", or anything.  The lady acted like she was being inconvenienced.  I had another problem with them that never did get resolved.  They owed me money but the checked arrived damage and I needed one reissued.   I gave my name, check number, my account number, voided the check out, and talked to about 15 people.  One person told me to contact the bank,  but a bank can't reissue a SEARS check.  Finally I got an email address that was suppose to clear it up.  Unfortunately, that address does not exist.    I'm going to Lowes from now on.  Twenty years ago I would have never considered going anywhere else but they suck.
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