Sears disclosed in its annual report that there is substantial doubt it will be able to keep its doors open. While the news makes me sad I also feel vindicated. I have long believed that Sears Chairman Eddie Lampert was milking the company to his own advantage and that under his leadership the giant enterprise would die.
Continuing a string of quarterly losses – the company has lost about $10.4 billion since 2011 – management has finally come to grips with reality. Their 10K filing with the SEC acknowledges that Sears Holdings may not be a going concern. This is no surprise given the state of Sears stores, which look sloppy. Kmart stores look even worse and often have a substantial amount of merchandise out of stock. Despite repeated attempts, no management team can right the sinking ship.
As early as 1973 Peter Drucker issued a warning to Sears in his masterful book Management (Harper & Row 1973). He wrote, “If Sears wants to maintain its leadership position and its capacity to grow, it faces major new challenges and may have to redefine what its businesses is, where its markets are, and where innovations are needed.” That was a tall order then; it is an impossible challenge now. Back in the 1970s Sears had talented managers at the helm, but they did not recognize the growth of new retailers. Home Depot, Lowe’s, Walmart, and more recently Amazon have plucked the uniqueness from Sears. In recent years, the only assurance of quality were its Kenmore, Craftsman and DieHard brands. Unfortunately, Eddie Lampert has sold off the first two, getting rid of much of the exclusive luster Sears once had.
Just last month Sears management announced a major restructuring. It planned to cut costs by selling more stores and brand assets, and by cutting jobs. These actions were long overdue. However, I doubt the cuts will lead to improvements in customer service nor generate renewed buying momentum. Certainly, the effect on malls where Sears’ is the anchor would be hurt and some malls may even need to close as Sears stores become unviable. In fiscal 2016, Sears revenues dropped 12% to $22.1 billion. Comparable sales dropped 10.3%.
Per reports, Sears management has contributed $4 billion to the pension plan in the past 12 years. It plans to use much of the $900 million it received for the sale of Craftsman to shore up its pension plan. There are still 140,000 people working for the company who count on pension benefits.
I do believe that there are many Sears and Kmart stores in good locations that are viable. These select stores could act as the nucleus for a reconceptualized company. Sears may not yet be dead, but as Dr. Drucker said back in 1973, it needs newness and innovative ideas. I do not believe the current management is capable of turning around the company. I have not seen any conviction by management surrounding a retail strategy. Rather, I see management holding back a bulging dike.
