Why Sears Holdings Corp (SHLD) Never Had a Chance

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To anyone under 40, all the boo-hooing over the fate of Sears Holdings Corp. (NASDAQ:SHLD) must seem pretty silly. The baby boomer will tearfully recall Sears’ stature as the Wal-Mart Stores Inc (NYSE:WMT) in her youth. Her old man will remember Sears as the Amazon.com, Inc. (NASDAQ:AMZN) of his.

Why Sears Holdings Corp (SHLD) Stock Never Had a Chance

To hear Sears is going under — and it is  —  despite another $200 million credit line from controlling shareholder Eddie Lampert — is like hearing that the water system is going under, that we don’t need those electrical poles, or that AT&T Inc. (NYSE:T) is dead.

Oh, the AT&T you’re thinking of, grandpa? The Bell System? Dead.

Sears Was American Retailing

It is hard to overstate the importance of Sears to the development of America in the 20th century.

The Sears “Wish Book,” as its Christmas catalog was known, brought consumerism to the countryside. The warehousing and sorting facilities it built were vital in developing regional centers like Atlanta. Sears was an early centerpiece of the American suburb, and helped create the American shopping mall.

Sears built demand for the basic infrastructure we take for granted. The U.S. Postal Service trucks delivering hefty Amazon packages today got their start working for Sears. As recently as the 1970s, Sears was a symbol of American corporate strength. The tallest building in this country was built as the Sears Tower.

Sears today has a market capitalization of under $1 billion, but as recently as 2007 that was near $20 billion. As recently as 2004, SHLD was a hot stock, tripling in value in the wake of Lampert’s takeover. Analysts no longer offer earnings estimates — not even a whisper. The two analysts left both have the same recommendation — “sell.”

The problem was that Lampert either didn’t know what he was buying, or didn’t care. He thought he was buying a mainline retailing giant. What he was really buying was infrastructure and systems that were 30 years out of date.

Wal-Mart had already taken Sears’ rural and suburban markets before Lampert combined it with K-Mart, which he already controlled. He thought combining the market shares of a discounter and a retailer would let him challenge the Walton gang.

But he was looking only at the front of the stores, not what was behind them, and this is the important point.

Retailing, the physical act of having someone accept a product and pay money for it, is the end of a long chain of events. Before that exchange happens, the buyer must be convinced they’re getting value and the store’s infrastructure must have delivered it.

What Sears Got Wrong

What Lampert saw in Sears were clerks in front of cash registers handing bags to happy shoppers. But at every step between Sears accepting delivery of product at shipping docks, and even at that point, there were people.

People cost money, and the key to retailing in the 21st century is to minimize their involvement. Wal-Mart and its acolytes, like Dollar General Corp. (NYSE:DG), do that with open floor plans and minimal staffing. Amazon does it by transforming warehouses into factories, and automating those factories.

Retailing is all about information. The old Sears delivered that information on pages in a book, backed by people, warehouses, and procedures. Even before Lampert bought Sears, all this had been reduced to magnetic ink, thanks to Wal-Mart and bar codes. Amazon simply finished the job, automating the process of choosing product, and breaking bulk without having people leave home.

Eddie Lampert’s Sears, in short, never had a chance. Julius Rosenwald’s Sears, however, might have. But Eddie Lampert is no Julius Rosenwald. If your great-grandfather were still with us, god rest his soul, he could explain it to you.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/why-sears-holdings-corp-shld-stock-never-had-a-chance/.

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