The recent store changes have not worked, and neither will the financial engineering. This company is on its way down, and a visit to a local store showed me why.
Sears used to be the General Motors (NYSE: GM) of retailers -- an apt analogy when both were all-American giants, and just as apt today as both struggle. 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 near $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 real estate value rather than the core business, which is to sell lots of stuff to people at prices that produce profits. And that ain't happening. Lampert has been a total failure as a retailer.
The customers aren't there
I was just in a Sears store in the Westfield Montgomery Mall, which is in an affluent
The store reminded me of the era of Frank Sinatra. Prices were between high and ridiculous for its category of store.
Now, I am a Target/Chevy Blazer/Hampton Inn kind of guy, and Sears was flat out non-competitive on everything from flat-panel televisions to those fleece blankets you get for your car or playroom.
No sales associates came up to ask if I needed help, and I only saw two cash registers in the entire store being staffed to help customers.
This was at lunchtime, in a very strong mall in the middle of an area not hit as severely by this recession as other parts of the country. The California Pizza Kitchen (NASDAQ: CPKI) had a line out the door and the Apple (NASDAQ: AAPL) store was moderately busy, as were selected parts of Nordstrom (NYSE: JWN) and Macy's (NYSE: M). Not great, but not a ghost town like Sears.
Yes, that's just one store but the numbers bear out what I saw on a larger scale.
On Dec. 2, Sears announced a loss of $146 million ($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.
These numbers are truly awful and not a huge surprise.
Sears historically has made a lot of money from selling
I write at this time because the company created a little buzz by saying it would close more stores (22 out of 3,900 -- big deal, right?) and it said it would buy back another $500 million in stock, about 11% of its market cap. 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 -- the kind that doesn't hold up stock prices for very long when fundamentals continue to deteriorate. And they will.
ChangeWave surveys and other third-party data tell us the economy is not only contracting faster than Wall Street estimates in Q4 of this year, but that it will do so in the first half of next year and probably for all of 2009.
For now consumers are keeping their pocketbooks closed, and when they decide to open them again, they can get a better bargain and a better shopping experience at many of Sears' competitors.
The die-hard bulls say Sears can still turn it around.
Here's why they won't: lousy management, lousy locations and a tremendous competitive disadvantage to other discount retailers.
Eddie Lampert is not a retailer, he is a financial engineer, and the chains have fallen rapidly since he bought them.
The situation with management is almost comical -- the company bragged it has just made major new hires from Lehman Brothers (you're kidding me) and the Gap (you must be kidding me).
Sears stores are often located in malls, not the place to be for a discounter. And, are they a discounter? Yes and no.
Yes, they are attracting discount store customers, but they really don't offer discount store prices. So they are competing against discounters, but are not really a discounter -- they are in the middle, which is a terrible place to be. Retailing has migrated to higher end (Nordstrom, Macy's) or low end (Target, Wal-Mart, Costco). There is little room for a retailer in the middle.
I would consider avoiding the stock -- or, if you are the type, consider shorting it with put option contracts.
And if you go to the stores, bring a BlackBerry or iPhone to compare prices. I mean, a fleece blanket for $19.99? They're eight bucks at Wal-Mart (NYSE: WMT).
Michael Shulman is a contributor to OptionsZone.com.











Reader Comments (Page 1 of 1)
12-08-2008 @ 4:16PM
Iridium said...
Sears has craftsman tools and decent lawnmowers. Thats about it.
The problem is that craftsman is barely better than most chinese carap you find at Walmart.
The entire deal reeked of an insider trading scandal to make a few investors a lot of money. Seriously, merge Sears with K-Mart, people thought this was a good idea?
The real joke was the Sears Grand stores that are converted K-Marts. They can barely stand up to retail stores designed in the '80s. They also charge more than Walmart of Target. Why is a Transformers toy $8.99 in Walmart and $12.99 in Sears Grand of K-Mart.
Sears can be turned around but it will take someone outside of Wal Street to do it. Sears needs to hire someone who knows how to sell to the average person, not how to sell a hyperinflated stock to investors.
The reason why retail is failing is becuase stores no longer sell product to people to make money. They sell product to prop up share prices to sell to investors. The entire industry is backwards.
12-08-2008 @ 4:24PM
UltimoDragon said...
The stuff at Sears might be higher priced, but I'll wager that most of it is of a better quality than Wal-Mart, not to mention it was probably made with [slightly] more progressive labor.
12-08-2008 @ 4:55PM
Jeff said...
Sears should have taken the hint from Monkey Wards and thrown in the towel a long time ago. You can buy the same Whirlpool appliances at Best Buy without a Kenmore tag on them, except at Sears you have to wait for some 75yr old commissioned salesman to spend 45 minutes trying to figure out how to ring it up
12-08-2008 @ 5:24PM
Jonathan Moore Sr. said...
Sears Roebuck has been an American Tradition for over a century. But, if the company is to survive. It most do what it doesn't want to do, and that is, downsize. Sears needs to close 50% of its store and have only one large Sears store in every major city in the U.S., instead of having 3,900 stores nationwide. Sears needs to concentrate on appliances only. Sears might have a chance for survival if it follows this plan. If Sears doesn't change it's strategy soon. It's demise is only a short time away; Sears will sink like the R.M.S. TITANIC.
12-08-2008 @ 5:28PM
Susan said...
I just tried to shop at Sears yesterday, because I had gotten a $10.00 off coupon from them in the mail. I couldn't find one thing in the store I wanted. The clothes were really ugly and poorly made. Maybe they need to hire someone who knows how to buy clothes that people would want.
12-08-2008 @ 5:37PM
John said...
I went to Sears on Black Friday, as they had a GREAT price on a washer & Dryer I had been looking at for a while. The shopping experience reminded me why I haven't shopped at Sears for several years, and why I will not go back. First of all, let me say that I did get the units I wanted, but was asked to upsell to over double the original price. It was "assumed" (never asked) that I wanted delivery, even when I was asking questions like "when can I pick it up?" and "Is it available for me to take with me". The response I got was"Well, you should have TOLD me you didn't want delivery. NOW I have to clear it out and start over again." The salespeople (commission, I'm sure) were completely unwilling to even talk to you, unless you were buying a "top-end model" with an outragous pricetag.
I have owned and used Craftman tools for as long a I have been able to hold a wrench in my hand, but with the pathetic sales staff, I have become a fan of "Husky" at Home Depot. At least there I can get help and someone that can figur out how to work the register.
12-10-2008 @ 11:50AM
Tom said...
Just about as clear a message as you could get. Too bad it comes so late in the game. A whole lot of people have lost a whole lot because the pundits took way too long to see the handwriting on the wall.
No matter what we think Eddie and company are guilty of and responsible for, all of the shills... in the media and elsewhere... share the blame for what has happened. Eddie could never have become Eddie without his enablers, especially those in the Wall Street press.
12-15-2008 @ 5:46PM
Yvette said...
Mr. Shulman,
You could not be more DEAD-ON!!! This is coming
from someone who knows for sure. Mr.Moore, you're correct as well.
12-30-2008 @ 7:49AM
Bob said...
Sears is still one of the most versatile retailers you will find hands down. The fleece blanket you are comparing is most likely not the same quality number one, number two they price match. Electronics are easily just as competetive when you watch the prices for the sales you want. You cant expect to walk into any store and expect every product your looking for to be at the rock bottom lowest price, it doesnt happen unless the products crap. The still have the largest selection of appliances out of any retailer out there. And lawn and garden has the largest selection of tractors as well on a consumor level. plus those of you who have had a bad exerience with salespeople, FIND A DIFFERENT SALESPERSON. It sucks you had a bad experience no argument there, but dont judge the whole company by a single bad salesperson. There are good salespeople at sears, just like there are 75 yr old people who cant run the register at plenty of other retailers, Ive seen them at Lowes, Home Depot, and even Best Buy. So there are good people out there with any sales based position you have to find a good salesperson almost as much as finding the right product to buy.
12-30-2008 @ 10:13AM
Randolph Holladay said...
Several years ago I wanted a battery so went to the Sears Auto Store because there was a warranty on their all-weather batteries. When I arrived I saw about 15 people waiting in line at a counter behind which was a large shelf filled with batteries. No one went out the door with a purchase for 20 minutes. Why? The young person at the register had not been trained to use the inventory system and could not ring up the purchases, I finally got fed up and suggested that they get a cigar box and a spiral notebook and ring up the purchases the old-fashioned way and have someone record them on the computer later. It was pitiful.
A week or so later I went to look for a part for my Sears mower. Although there was no one in the store I waited for the woman in charge to do her paper work etc. and then she called a trainee out of the back to help me. He didn't have a clue about looking up inventory numbers nor did he dare ask this woman manager for help. Meanwhile, she went to wait on an older woman who seemed interested in buying something. Yes, they sell merchandise at the repair store which is miles from the main store. She wanted the commission more than she wanted to help me get my mower repaired and when I finally got her attention she was downright nasty saying that I should have been more patient with the trainee. I was, I tried to help him and wanted him to succeed, apparently more than this woman did. I won't ever go back to Sears to have anything fixed. Their parts are too expensive and they are not helpful.
I worked for sears delivering appliances when I was a young man. In those days we took the washers and hot water heaters into the basements of our customers and brought the old ones out and back to the warehouse for disposal.
Sears had a farm and home store that was very popular, it had a coffee shop and well-made clothes for the working family, not the poorly-designed "stylish" stuff they now carry.
I do like the Oshkosh and Cahrhart work clothing when they have enough in stock to make it worthwhile to look.
1-17-2009 @ 12:24AM
Alice said...
As a long time employee of one of Sear's specialized companies, I am ashamed of what Sears has become. All American store-guess again, outsourcing is rampant, overpriced inventory, too many overpaid corporate folks, etc. The worker bees are the ones that feel the pain of decreased sales. Got to be sure the big guys still get their bonues!!!