First quarter 2016 saw a loss of $471 million compared to a loss of $303 million or ($4.41) versus ($2.85) per diluted share in last year’s first quarter. Revenues decreased a whopping $488 million in the quarter leaving the company with sales of $5.4 billion versus $5.9 billion, down 8.3%. Comparable sales plunged 5% at Kmart and 7.1% at Sears domestic stores, a decline of 6.1% for the combined companies. There were decreases in key departments such as home appliances, apparel, consumer electronics, footwear and Sears Auto Centers, an alarming sign for future growth.
It is true that many other retailers have seen sales shrink in the first quarter but no others with the severity of Sears Holding. A close analysis of the earnings report makes it clear that Sears is bragging about its valuable assets. I am of the opinion that if the valuable assets are not pulling their weight this retailer is close to gasping its last breath.
CEO Lampert sees great value in some of Sears Holding brands; brands that have made Sears famous. This includes Kenmore, Craftsman and Die Hard (now banded together by some Sears wag as “KCD”), and Sears Home Services (SHS). SHS includes in-home services (protection agreements), Parts Direct, delivery, installation, repair, and home improvement. Sears has hired Citigroup Global markets and LionTree Advisors, to evaluate future partnerships or other transactions that could expand the brands’ distribution. In other words, the iconic brands are for sale. Eddie Lampert is right; his company has a lot of assets. However, the exclusive brands – Kenmore, Craftsman and Die Hard - made Sears a destination retailer. These brands have long stood for high quality products the consumer can trust. Mr. Lampert is giving that up in order to keep the company afloat.
I believe it will be the death knell for Sears Holdings if these brands become broadly available at other stores. One of the key reasons to shop at a Sears or Kmart, the exclusive brands, would no longer exist. The merchandise would be available at other national chains. I think companies like Home Depot (which already sells some Craftsman tools) or Lowe’s or J.C. Penney or even Ace Hardware would be well advised to consider these brands as part of their growth strategy.
J.C. Penney may be giving serious consideration to how it could own or work with KCD. The department store chain would certainly benefit from owning these brands as it pursues opening hundreds of appliance and other home departments in the years ahead.
I worry about two groups that still rely on Sears Holding. One is the 200,000 associates whose lives are at stake as Eddie Lampert sells more of the assets. There is little doubt, additional stores will have to be closed. I also worry about many of the malls that currently house Sears stores and question their future viability. As I see doors closing, some of the malls will have empty spaces that will be hard to rent. It will hurt the small specialty stores that cluster around the entrance of Sears and the other major anchor tenants such as Macy’s, Nordstrom, Dillard’s, J.C. Penney or Belk’s. Closing more Sears and Kmart stores will hurt retailing at a time when retailers need all the help they can get to motivate more in-store shopping.
There has been a shift by the consumer. Today’s consumer no longer shops the way she once did – she now looks for specific items – and forgoes long shopping sprees by shopping on the Internet. This modern consumer does not need to shop at Sears or Kmart or at any other stores that she does not trust.
