I am compelled to weigh in on “Eddie’s” (Edward Lampert’s) recent Sears Holdings financial announcement, even though I wrote a major article just a short time ago, deliberating on what his intentions were for the business and my opinion on such. You might want some of that background and perspective along with this brief missile: Fast Buck Eddie: Brilliant or Bonkers?.
I am compelled not because it’s been covered broadly across the media spectrum, but because I believe this is a seminal moment for Sears Holdings. My humorous bashing of “fast buck Eddie,” and comparing Kmart and Sears to “two Titanics,” aside, I seriously do believe the proverbial hymn: “Nearer My God To Thee,” may be striking up on both decks.
The recent press release that Sears Holdings would be closing 100 to 120 Kmart and Sears stores (about 5% of its 2,200 full-line stores), on the heels of a fourth quarter plummet in earnings, down more than 50% from the $933 million in EBITDA last year, might have been a non-event for other major retailers hitting a speed bump in bad times. But, for Sears Holdings this comes on the heels of 18 consecutive quarters of declining sales (under four different CEOs). Also, these store closings and all attendant cost cutting, inventory sales and real estate deals are obviously connected to one objective: sustaining liquidity – cash flow. Cash had dropped to $624 million at the end of the third quarter vs. $790 million a year earlier.
The stock has crashed from its high in 2007 of $192 to $33.38 after the announcement. One analyst said if the stock drops to a level around $20 per share, Sears would be “one stop on the way to liquidation.”
In my opinion, this event, at this point in time, is the indication that these two once-iconic brands (that Eddie promised to revitalize), have reached the final tipping point. Yes, the closures will generate cash proceeds and may slow the plunge to the bottom. But, it will not stop or reverse it.
No more abracadabra (now you see it, now you don’t) initiative declarations will work. No more fancy financial footwork, spinning cash out of thin air. It is the beginning of the end. The question of how long the final dive to the bottom will take remains, however. After all, it is six years hence, and while sales have consistently declined, down from about $53B to roughly $43B in 2010, it’s hard to nail an end date.
However, as I pointed out in my previous article, I believe Mr. Lampert is aware of the inevitable and is displaying his brilliant financial skills in managing the business down. And, make no mistake, I am convinced he is managing it down, their official public pronouncements notwithstanding.
Of the store closings, Sears said, “While our past practice has been to keep marginally performing stores open while we worked to improve their performance, we no longer believe that to be the appropriate action in this environment. We intend to accentuate our focus and resources to our better performing stores with the goal of converting their customer experience into a world-class integrated retail experience.” Well, this statement is yet another attempt at the abracadabra kind of spin Eddie puts on the never ending series of negative events. Don’t be fooled.
His magician’s spin began when he formed Sears Holdings, declaring all kinds of initiatives, too numerous to list. Some were put into place, others were not. None of them stopped the decline. However, there were four initiatives launched that stick to this day: cost cutting; a revolving door for executives; skimping on capital investment in maintaining and updating stores (about $2 per square foot vs. his sector’s $6-$8); and stock buybacks ($5.2 billion over the past five years).
Why do you think I labeled him “Fast Buck Eddie?”
Listen to this. Sears lost its way in the late 1970s, Kmart in the 1980s. Both continued wobbling downward until Mr. Lampert merged the two losers in 2005, and has done zero to strategically position either one with any focused competitive advantage, as evidenced by their combined, steady financial deterioration.
Walmart, Target and to some extent the Dollar stores will continue to gobble share from the bottom of their consumer base, as they have from their beginnings. Home Depot, Lowe’s, Amazon and Best Buy will continue to kill them on their flanks. Kohl’s, JC Penney, Macy’s and other department stores will continue to take direct chunks out of their hide. And, of course, the specialty chains will continue picking off share segments. All of these competitors continue to get better at the business of retailing as Kmart and Sears get worse. All of them will continue to push the two under, until there is no longer any air for them to gasp.
And, James Cameron won’t be directing a “Titanic” sequel.