Sears has been in the news a great deal this month, announcing awful sales results and planning yet another stock buyback to prop up its flailing share price.
Recent store changes have not worked, and neither will the financial engineering. This company is on its way down, and a visit during the holiday shopping season showed me why.
For decades, Sears (SHLD, news, msgs) was considered the General Motors (GM, news, msgs) of retailers -- and the analogy is just as apt today, when both are struggling, as when both were all-American giants.
Sears had completely lost its way when vulture investor Eddie Lampert bought the company in late 2004 and combined it with Kmart. Wall Street analysts went nuts, pushing the stock price to $192 a share. Today, Wall Street has lowered that price to below $40.
Of course, no one who works on Wall Street actually shops at Sears or Kmart. These geniuses fell in love with the potential for financial engineering and the value of the chains' real estate rather than their core business, which is to sell lots of stuff to people at prices that produce profits. And that isn't happening. Lampert has been a failure as a retailer.
The customers aren't there
I was recently in a Sears store in Montgomery Mall, which is in an affluent Maryland suburb of Washington, D.C. There were fewer than 20 prospective customers on the two floors of the store -- fewer than I saw in a Crate & Barrel store that had about a 20th of the square footage.- Talk back: Why do you think Sears is struggling?
The store reminded me of the era of Frank Sinatra. Prices were between high and ridiculous for its category of store.
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Now, I am a Target/Chevy Blazer/Hampton Inn kind of guy -- my suits are Hart Schaffner Marx or Ralph Lauren, but no one is perfect -- and the store was flat-out noncompetitive on everything from flat-panel televisions to those fleece blankets you get for your car or playroom.
No sales associates came up to ask whether I needed help, and I saw only two cash registers in the entire store being staffed to help customers.
This was at lunchtime, in a strong mall in the middle of an area not hit as severely by this recession as other parts of the country. The mall's Apple (AAPL, news, msgs) store was moderately busy, as were parts of Nordstrom (JWN, news, msgs) and Macy's (M, news, msgs) -- not great but not a ghost town like Sears.
By the numbers
Yes, that's just one visit to one store, and Sears remains one of America's largest retailers. But the numbers bear out the struggle I've seen on a larger scale.On Dec. 2, the company announced a loss of $146 million, or $1.16 per share, more than twice what analysts were anticipating. Sales in the quarter declined 7.8% and same-store sales fell 9% to $10.7 billion, far more than other retailers' sales.
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These numbers were truly awful and not a huge surprise.
Sears historically has made a lot of money from selling Kenmore appliances. A lot of those appliances go into newly purchased homes -- and there's not a lot of that going on. Recent retail surveys show appliance purchases in November were down nearly 25% year over year.
Financial maneuvers
The company earlier this month created a little buzz by saying it would close more stores (22 out of 3,900 -- big deal, right?) and buy back $500 million more in stock, about 11% of its market capitalization, or value. The stock popped more than 12% on the news.Given the state of the economy, forecasts for 2009 and other problems at Sears and Kmart, do you think it is wise to spend 40% of your existing cash to buy back shares after having already spent more than $4 billion on shares rather than fixing the company?
This is simply a bribe to prop up the stock price. And these kinds of bribes don't hold up prices for very long when fundamentals continue to deteriorate. And they will.
ChangeWave surveys and other third-party data tell us the economy not only contracted faster than Wall Street estimates in the fourth quarter of 2008 but that it will do so in the first half of next year and probably for all of 2009.
Continued: Can Sears turn it around?
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