December 10, 2017
Whether you own or run a small business, you can learn a lot to protect your company by paying attention to what happens to the bigger companies. At one time Sears was the largest retailer in the world with a well-known, reliable brand that seemed almost indestructible. But will the company that started out as a mail order business 125 years ago – and grew into a global giant – be the latest company to go bankrupt and close its doors because it did not recognize change?
Although Richard Sears published his first catalog in 1888, the company that would become Sears, Roebuck & Company didn’t jump into retail until 1925. Perhaps it should have learned from its own past by understanding the need of its customers.
On January 4th Sears announced it was shutting its doors on 103 more namesake and Kmart stores this year in yet another round of store closings. The retailer told employees in a note posted on its Web site it was closing 64 Kmart locations and 39 Sears stores. This announcement comes only two months after Sears’ most recent store closing news, which followed a wave of such announcements throughout 2017. The company has closed hundreds of locations in the last few years.
Many experts attribute the continuing downfall of Sears as being its initial failure to recognize the changing world around them and their unwillingness to conform to the paradigm shift of their customers.
The company, which incorporated in 1892 when Sears and Alvah Roebuck founded the A. C. Roebuck watch company, renamed the company a year later as they began to diversify. By 1894, the Sears catalog had grown to 322 pages, featuring sewing machines, bicycles, sporting goods and automobiles.
The modern iteration of Sears never evolved. Instead of transitioning to a combination of brick and mortar and establishing itself with a strong online presence like Walmart and Target did, they remained focused on the retail end and as a result might now witness their own demise later this year.
The retailer, whose comparable sales declines have worsened in recent quarters despite the elimination of so many weak stores, has said repeatedly it is trying to reinvent itself as a company less reliant on physical space. But it might be too little too late. In its most recent quarter, Sears said comparable sales fell 17% at its namesake stores and 13% at Kmart. It was the 24th quarter of comparable sales declines in a row for the company.
In November Sears reported a loss of $558 million for its third fiscal quarter, felled by the continuing collapse in sales at its established Sears and Kmart stores. But because it was a smaller loss than in 2016, showing the shrinking retailer is at least cutting costs efficiently as its core business dwindles, shares went up 5% though they remain down 70% from their 52-week highs.
“We will continue to close some unprofitable stores as we transform our business model so that our physical store footprint and our digital capabilities match the needs and preferences of our members,” the company said in a statement. The liquidation sales will start on January 12 and the stores are set to close between early March and early April.
The company has lost more than $10 billion in the last six years, putting enormous strain on its finances and prompting it to sell some of its best assets in recent years such as its iconic Craftsman brand to tool maker Stanley Black & Decker last year and forcing it to look for new sources of revenue such as its recent moves to sell its Kenmore appliances and DieHard batteries on Amazon.com.
While Sears CEO Eddie Lampert, the hedge fund manager who engineered the merger of Sears and Kmart in 2005, has lamented the difficult state of retail, his company has dramatically underperformed rivals like Macy’s and J.C. Penney. Those chains reported sales growth for the key November and December period. Sears does not typically provide an intra-holiday quarter update. Sears shares were immediately down 4% after the announcement and were about 75% off 52-week highs.
On January 2nd Money magazine identified Sears as one of 15 retailers that could potentially see it’s last days in 2018, citing that 50 major store chains, including iconic players like Toys R Us and Payless Shoes, filed for bankruptcy protection in 2017; a total that’s up from 47 retailer bankruptcies in 2016 and only 30 in 2014 according to S&P Global Market Intelligence.
Analysts say that it’s particularly difficult for all of the stores to survive in the era of increased competition from Amazon and other online retailers plus the fact that American shopping centers are simply overbuilt. That’s why so many stores were at high risk for bankruptcy in 2017, and why the pace of retailer bankruptcies could increase this year.
In addition to Sears, Money identified some other very well known brands as potentially being in their final year of operation including: Stein Mart, Burlington stores (formerly Burlington Coat Factory), Tailored Brands Inc. (Men’s Wearhouse, Joseph A. Bank), Bon-Ton department stores, and Bebe apparel.