Why Sears Will Never Be Great Again

Why Sears Will Never Be Great AgainThere was a time when Sears Holdings (SHLD) mattered, but you have to go all the way back to when you risked paper cuts from the retailer's leafy mail-order catalog to remember it.

Things just haven't been as rosy on this side of the millennium.

As the parent company of Sears and the even more underwhelming Kmart, Sears Holdings has been a meandering disaster since Eddie Lampert played Dr. Frankenstein in piecing the two tattered chains together in 2004.

Lampert's plan made sense at first. Kmart and Sears were fading department store chains at the time, but they were huge generators of cash flow. As a Warren Buffett fan, Lampert figured he could use that money to grow his empire with even more timely acquisitions. Kmart had billions in accumulated tax losses that could be used to offset future profits. Many of these stores were also sitting on juicy real estate.

What could go wrong? Well, how about everything.

Blue Plight Special

As a keen consolidator, Lampert figured that he could milk some serious synergies by eliminating corporate redundancies. It also seemed like a no-brainer to see if Sears' respected Kenmore appliances and Craftsman tools would add prestige to Kmart.

However, there was a reason that both chains could be acquired so cheaply. There was a reason that Kmart had amassed $3.8 billion in tax credits. These weren't chains in which it was prudent to cut corners to squeeze out more cost savings. What the tired concepts needed was a material influx of capital to refresh the stores.

Lampert didn't see it that way. He brought a knife to a gunfight. More specifically, he brought a chainsaw to an ill-advised turnaround situation.

Life hasn't been kind to Sears Holdings under Lampert's watch. Revenue at the combined company has fallen for 19 consecutive quarters. Same-store sales have been routinely negative. Things are bad, but they're about to get even worse.

After posting larger-than-expected losses for three consecutive quarters, Lampert's modest profitability at Sears Holdings on an annual basis is about to see red. Analysts see the retailer posting a loss of $2.34 a share this fiscal year and $1.86 a share in fiscal 2012.

Shears for Sears

Nothing seems to be going right for Lampert lately. What good are tax loss carry-forwards for a company that is unlikely to return to profitability to use them? A real estate play may have intrigued frothy speculators seven years ago, but it's obviously a different landscape these days.

If Sears and Kmart have any shot at turning around their fortunes, it's going to take material capital expenditures to update the stores. Unfortunately, that just isn't in the DNA of its management team.

I have a sentimental soft spot for Sears. My first job in high school was selling maintenance agreements for Sears. I would hate to see that icon go down, just as I dreaded visiting Chicago this summer and having to tell the cab driver to take me to Willis Tower.

However, there's no way that this has a happy ending with the current players. Sears Holdings doesn't have the scale to compete against Walmart (WMT) on prices. It also doesn't have the cheap-chic panache of Target (TGT), regardless of the initial success of its Kardashian Kollection.

There's No Place Like Home for the Ho-Ho-Holidays

Remember when Sears used to market "the softer side" of its stores? It was a way to remind shoppers that Sears wasn't all Kenmore washers and Craftsman monkey wrenches. These days it seems that the company can't even get consumers to load up on its hard goods.

This holiday season will be profitable for Sears Holdings. It always is. However, we're a long way from 2006 and 2007, when Sears Holdings was in the black all year round. Sears Holdings will be profitable now, but that won't be enough to offset what it lost during the three previous quarters.

Get used to it. Analysts see that happening again in fiscal 2012 and fiscal 2013. There's no reason to expect that trend to reverse itself. We're done milking cost efficiencies here, and customers continue to shop elsewhere in growing numbers.

The Internet didn't do Sears Holdings any favors. It is, after all, the mail-order catalog of our time. However, Walmart and Target have been able to profitably navigate their way through this changing marketplace.

Sears and Kmart were supposed to save each other, but all they've done is combine to sink faster.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Walmart Stores. Motley Fool newsletter services have recommended buying shares of Walmart Stores, as well as creating a diagonal call position in Walmart Stores.



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nthereoff

Just looked at a Sears sales circular. And found just about everthing there cheaper at Home Depot . Years ago Sears and J C Penny were the only stores to shop. A lot more choicest today. Good luck Sears .

December 23 2011 at 8:02 AM Report abuse rate up rate down Reply
jph1335

I retired from Sears, they were good to me, but back some time in the 80s when the new breed of management started taking over that was when Sears started their downward spiral. Too bad that the old management isn't still around.

December 10 2011 at 9:45 PM Report abuse rate up rate down Reply
1 reply to jph1335's comment
savemycountry911

Yes, I can remember when the sales people knew the product they were selling. Now there are just part time kids who shoveled french fries last week.

December 11 2011 at 9:55 PM Report abuse +1 rate up rate down Reply
eastport111

The merger was a bad idea from the start just as Sears buying Lands End was also stupid.
K-Mart stores are not located conveniently and are always a mess. Merchandise is lying all over the floor making it impossible to maneuver a shopping cart around the aisles.
Even worse was thinking that Lands End shoppers and Sears shoppers would buy from both places. Lands End customers will not shop for clothes at Sears and probably people who buy clothes at Sears have never even heard of Lands End.
I don't know if the aquisition is responsible for the unattractive clothes that are now in the Lands End catalogue or if there is another explanation but Lands End used to sell classy elegant clothes and now they almost look like what Sears sells.

December 10 2011 at 5:47 PM Report abuse rate up rate down Reply
more30

Ah yes, well here we have it. Companies keep automating and outsourcing...so you get what you pay for? or rather, you DON'T EVEN get what you pay for. How many products are made in USA and provide good jobs for Americans? I spend hours trying to find USA products and I don't mind may paying a bit extra but there are little if none to be had. This didn't happen overnight so every time YOU purchase an item, YOU send a vote for that product or that company and all it's tangled greed along with it. The average consumer thinks of just price and there's much more than that to review. (Understandably with half the nation out of work, price may be a deciding factor) We like our Sears and used to enjoy the catalog shopping as well. The employees are friendly and helpful. K-mart is more convenient but the atmosphere is of a "budget type" shopping experience. It depends once again on the product you're shopping for. Soon, the economists will be telling us how the holiday shopping didnt boost the economy as it should have.....But it's the greedy corporations and CEO"S that are holding back on re-investing their profits. Now that they have "done more with less" and pushed their employees to the brink with high profitability, do you really think they are going to care enough to hire more employees? Now, just push the employees HARDER and if they don't like it, there's another unemployed person waiting to get badgered. Le'ts hope that Pres Obama gets some cooperation one these days from the greedy Republicans who have blocked everything he has tried to do to build the economy. At least, he doesn't need to spend much on his campaign..all the Republican's have to do is open their mouth and it's a WIN for the Democrats. -(ick, can you imagine having a President Newt or a Mitt? That says it all! lol) God save us. Happy Holidays everyone

December 10 2011 at 2:27 PM Report abuse rate up rate down Reply
jmbkanga2

This is an example of what happens when bean counters are in charge. I doubt that Lambert even bothers to visit stores and check them out from a consumer's point of view. I live in Marin County, which has a reputation as being one of the most affluent communities in the country (although I certainly don't feel very affluent in this economy), but whenever I walk into the local Sears store, it's so empty of shoppers it's almost creepy. The women's clothes are so ugly and cheaply made, I can't conceive of anyone I know actually buying or wearing them. I get the impression the only women shopping there are in a very low income brackets and shop there because it's so easy to open an account at Sears. Many of the clothes are in busy little prints that look like Depression era house dresses. The children's department and appliance departments are a little busier, but they're so unattractive it's depressing to be there. There's a little more activity in the hardware department where they still have loyal Craftsman Tools customers. I remember a time when Sears tried to be all things to all people and the local store had a Coldwell Banker Real Estate booth and an Allstate Insurance booth which is a very common mistake for major retailers. Far better it is to do one thing and do it really, really well. Sears tried to do all things and did them all very poorly. There have been so many stories about price gauging in their auto shop I don't even consider them an option anymore. Why doesn't Lambert look at retailers who are doing well, like Nordstrom's? They hire buyers for different regions throughout the country so they're buying merchandise to fit the needs and wants of that particular geographic area. In the San Francisco Bay Area, there are many very afffluent women who can afford to buy high end fashion, so that's what they stock in their Bay Area stores. Sears seems to expect women in the San Francisco area to buy the same women's wear they sell in midwestern rural areas. I hate to say it, but they almost deserve to be doing so badly just for their stupidity and not staying close enough to their core business and values. Greed and avarice fail once again.

December 10 2011 at 12:40 PM Report abuse rate up rate down Reply
dj21465

I work for sears and we strive to provide good customer service and product with value. I purchased two shirts one from sears the other from, well you'll get it. The shirt from sears is still in my closet looking good,the other one in the trash can after wearing it twice.I as a consumer see the value in that.I spent a little more and by doing so i saved money.I also purchased an edger from another store just because it was closer to my house.The leaver that adjust the angle of blade broke within a month.I returned it to that store,their reply was you need to contact the mfg..My bad,I should have gone to Sears.I am a consumer like you I see the difference.Some people just don't understand ,if you take Sears out the equation you'll end up with cheap over priced good ready for the trash can.I as a sales consultant have customers with reasonable problems and we bend over backwards to take care of their needs.Think about it,Sears first you'll end up here anyway.

December 10 2011 at 10:00 AM Report abuse +1 rate up rate down Reply
maleus2

I needed a small, thin gasket for my water softener. Sears softener, Sears part. I got some cubical dizzy man from the 1-800 # from the Sears Warranty pamphlet who said I HAD to buy that part with another for $36+ tax and shipping and blah blah... I got the part and it lasted about a month and after that, I put in a $2400 new water softener that wasn't Sears or anything that started with an 's'. So, to vote with my money, I got rid of a newish softener called Kenmore Sears softener about $650 dollars gone and put in a new softener my well man said I would be absolutely delighted with. Go with your well guy, they know what is good.

I wouldn't buy a thimball or a screw from Sears. Screw I got! My friend and my Mom had Sears refrigerators or Kenmore and the parts they needed with service call was almost as much as a new refrigerator. One of the two, do not have a Kenmore anymore. I will not buy from Sears.

December 09 2011 at 6:29 PM Report abuse rate up rate down Reply
ajt1025

Since K Mart has taken over Sears everything has gone down hill. The stores are cluttered with product and it is hard to shop at either K Mart or Sears. Quailty has fallen way, way down at Sears as well. You could at one time be happy with the purchases you made at Sears, (Not a big fan of K Mart) lately there is nothing worth going to Sears for except their tools. How many tool can you buy? I remember the time when Sears rained high on a list of quality and pride in the products they sold. Today it is like Wal-Mart.

December 09 2011 at 6:24 PM Report abuse rate up rate down Reply
ajt1025

Since K Mart has taken over Sears everything has gone down hill. The stores are cluttered with product and it is hard to shop at either K Mart or Sears. Quailty has fallen way, way down at Sears as well. You could at one time be happy with the purchases you made at Sears, (Not a big fan of K Mart) lately there is nothing worth going to Sears for except their tools. How many tool can you buy? I remember the time when Sears rained high on a list of quality and pride in the products they sold. Today it is like Wal-Mart.

December 09 2011 at 6:24 PM Report abuse rate up rate down Reply
lindaseang

Kmart seems to have the unwelcome look for the way the store organises machandise to narrow lane check , kink walkway and lighting. ...It also gives the feeling of walking into a store that sell only women clothing nothing for men.

I think Kmart store need to create the artistic appeal: warm , welcome, and eye catching marchandises like TV or cameras at the back of the store that can be seen the minute people walk into the store, something for men to want to go shop too.

December 09 2011 at 5:01 PM Report abuse +1 rate up rate down Reply