Here is a true confession that shows how old I am. The first credit card I ever had was a Sears Holdings Corp (NASDAQ:SHLD) card. Whenever I need to recapture my lost youth, it’s still around, somewhere.
But my kids haven’t set foot in a Sears, and their kids will never know what one was.
Final chords are fast approaching for what was once America’s best-known, and largest retailer. The “experiment” of hedge fund manager Eddie Lampert, who once promised to turn the company around, instead hangs like a weight around his reputation, even on Forbes’ billionaire list.
The stock’s latest fall, 13% on Jan. 30, takes the value of Sears down to $640 million. That’s 71% below where it was in 2016. In 2007, SHLD stock traded at $190 per share. That’s more than $10 billion wiped away.
During its 2016 fiscal year, which ended in January, Sears lost $1.129 billion on revenue of $25.1 billion. For the first three quarters of fiscal 2016, SHLD had lost $1.6 billion on revenue of $16 billion. Writer-analyst Brian Sozzi has been documenting the sad state of Sears stores since 2013, and nothing has been done about it.
If anything, they’ve gotten worse.
Wall Street Fails
Sears didn’t all go up in smoke. Over the last decade, Lampert has spun off Lands’ End, Inc. (NASDAQ:LE), Sears Canada Inc. (NASDAQ:SRSC), Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) and most of the real estate. He’s sold the Craftsman brand and still is seeking buyers for DieHard and Kenmore — he may find them. He just gave the stores a $200 million loan, which could go to $500 million, and will have lent $1 billion to Sears in two years.
Lampert was once called “the next Warren Buffett,” but the original one knew what was coming for Sears a decade ago. “Can you think of an example of a retailer that was successfully turned around?” he asked in 2006. J C Penney Company Inc (NYSE:JCP) shareholders take note, please.)
One number tells the tale. Department stores need margins of 35% to survive, given their overhead. Costco Wholesale Corporation (NASDAQ:COST) gets by on about 10%. I’m going to Costco.
Fitch Ratings says Sears has blown through $1.6 billion in cash over the last year, and needs $2 billion to keep the doors open all year. Reportedly, Kmart employees are being laid off to save on cash, but the company is, frankly, on the brink.
Why Sears Failed
A century ago, Sears was the primary innovator in retail. It was Amazon.com Inc. (NASDAQ:AMZN) before there was an Amazon. Atlanta’s biggest new attraction, called Ponce Market, was built inside a onetime Sears catalog center. When Sears opened a new store in a new city, it was once a big deal — it meant people there had made it.
When Americans moved to the suburbs, in the 1960s, Sears followed them, and its urban stores began closing. When America started going to big-box stores, there was Kmart, which bought Sears for $11 billion and renamed the corporate entity using the Sears moniker. For a time, customers followed.
Three companies killed Sears. Wal-Mart Stores Inc. (NYSE:WMT) was killing Kmart long before it bought Sears. Amazon, of course, built efficient e-commerce infrastructure after SHLD had dismantled its. Costco was the final nail in the coffin.
You can add a few other suspects to the line-up — W.W. Grainger Inc. (NYSE:GWW) for business purchases, Gap Inc. (NYSE:GPS) and Best Buy Co. Inc. (NYSE:BBY) in those verticals. The spinoff of the credit card unit into Discover Financial Services (NYSE:DFS) didn’t help.
Business is a dog-eat-dog world, and Sears has gotten chewed up.
But mainly it was what Buffett said a decade ago. Retailers are nothing without their reputation. If you’re not known as the best, the best quality or the best value, you’re nothing. Malls don’t have that reputation, and department stores don’t have that reputation.
Or as Proffessor Harold Hill sang in The Music Man, “the Uneeda biscuit in the airtight sanitary package made the cracker barrel obsolete.” You change or you die, no matter how big you are. Sears didn’t change.
Now it must die.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.