Defensive Strategy

The Sears Endgame

29 Dec 2011  

This week brought more bad news from Sears, with the company reporting weak holiday sales and announcing that it would close more than 100 stores and take a $1.8 billion charge.

Sears is a fading enterprise. Sales are down from $53.0 billion in fiscal year 2007 to $43.3 billion in 2011. The stock is trading today at about $33 dollars per share, down from over $180 dollars per share in 2007.

The decline isn’t likely to stop. Overall retail sales in the U.S. will probably muddle along and Sears will continue to lose share to tough competitors like Amazon, Target and Best Buy. Sears hasn’t invested in its stores, so the retail environment will continue to deteriorate. And the core problem remains: Sears doesn’t have a clear brand position in the market.

The only unknown is the endgame. What will happen to Sears and Kmart?

The company isn’t likely to be purchased because an acquisition depends on having a buyer. It isn’t clear who would want the company.

Liquidation is possible but this would be costly and challenging. And, with the soft commercial real estate market, disposing of the retail space would be difficult.

A repositioning is needed if the brands are to rebound, but this seems unlikely, too, because this would require significant investment. And a repositioning would probably involve a narrower focus, hurting short-term results.

Sears could spin-off its product brands, such as Kenmore and Craftsman. This move would make a lot of sense, but it wouldn’t fix the Sears and Kmart brands.

The most likely path seems to be more of the same: a gradual, slow decline leading to liquidation. The only question is how long it will all take.

7 Responses

  1. RJ Dragon says:

    If I remember correctly, Kmart was bought out of bankrupcty by private equity and then went on to acquire Sears. The fuel for this was that Kmart was essentially two businesses, a retailer and a real estate portfolio. Gradually shrinking the business enabled the company to harvest cash from its real estate. In certain parts of the Northeast, WalMart is basically locked out, and Kmart does fine. Adding Sears products gave Kmart more store brand products to sell. Sears also has stores called Sears Hardware, which are able to best leverage the Craftsman and Kenmore brands. Don’t forget Lands End, another strong brand. Perhaps the path in the future is to use the Sears name for hardware and use Lands End for the clothing business, with separate store locations. In any case, its not an easy road for a retailer these days.

  2. Andrew C says:

    I actually bought a Samsung LED television from Sears last summer. I ordered it online and then was supposed to be able to pick it up at the store. I like this business model for bulky things like that because I don’t have to wait around for a delivery and worry about a signature or letting it sit on my porch all day. Anyway, I get to Sears that evening to pick up, and there’s no order. There’s some technical problem where the web site placed the order to be picked up at the central dispatch facilty for televisions, not the store. The store staff can’t cancel the order in the system for that TV and fill it with the one they have in stock already. The store manager got involved, and I wil give him credit for trying very hard to fix the problem quickly and for really being quite professional. Still, after an hour, I had to buy the second TV so I could leave with something. I worked with him over email and it took about two weeks to clear the other TV from my charge card.
    The interesting thing is that throughout the process, all the Sears people kept saying how terrible the web site is and that mistakes like that happen all the time. I wonder if they can truly do any better as an Internet retailer.

    • Tim Calkins says:

      Not encouraging for Sears!

      It isn’t easy to win on the web, and connecting stores with the online system adds another level of complexity. Retailers like Sears will have to figure it out, however, since that appears to be the future. The team at Sears needs to sort it out quickly.

  3. RG says:

    Speaking to a few folks who work with Sears account in web marketing I highly doubt web presence strategy is working for Sears. Sears brand has been tarnished for good.

    I see them having three options or perhaps a combination of the 3 -stop the bleeding by closing shop, spin off stronger brands, invest in creating a new brand which is hip, caters to younger demographics and relevant withing the competitive space.

  4. Courtney says:

    I know Sears is trying to rent out some of its space, but what if they beefed up their web presence. They were ranked right behind Wal-mart in Internet Retailer and even though they are still far away in volume behind Amazon, I wonder if they could beef up their sales by rebranding themselves as an e-catalog retailer vs. brick and mortar. It won’t help with their retail space, but perhaps the web sales could make up for it.

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