Sears has been in the news again this week with news regarding the potential sale of one of their iconic brands. I wrote a post for another site a few months ago when Sears first decided to put three of their mainstay brands up for sale: Craftsman tools, Kenmore, and Die Hard. This is most certainly an effort to increase cash flow through both the sale of the brands and through the almost certain jump in Sears stock as a result.
The news that an as yet unnamed bidder (rumor has it the bidder is Black & Decker) is interested in paying a significant amount of money for the Craftsman name with some estimates in the $2 billion range; has Sears stock trading at an increased level in the past two days. Craftsman is a symbol of uncompromising quality in tools and related hardware products that is well established in the consumer marketplace.
The unfortunate other side to this transaction is that many industry experts and financial market insiders with great knowledge of the situation indicate that even if Sears divests Craftsman in this deal, the cash flow is not enough to make a reversal of the outlook for the company.
In fact, those same experts as well as some other reports I reviewed state that even if Sears sold all three of those brands at a premium it still would not help their cause. This is where the Sears merger and acquisition of Kmart stores again looms large in the negative outlook for the company.
In my understanding of the situation having covered this as well as other failing retail brands in the past is this: essentially while the sale of the brand, in this case it is Craftsman, may help Sears in the short term; Sears will lose the profit generated by the sale of those branded products which it currently owns outright.
The mere fact that Sears put these three well established brands on the block to be sold is (if some of you remember my previous work on this subject) an indication that the times are desperate there. It is an indication that the company is definitely preparing for “reorganization” (i.e. bankruptcy) in the near future.
Sears also owns a great deal of real estate between the buildings of their brick and mortar retail stores and the land that those stores are situated on which contributes to their profit and loss situation. It is expensive to maintain both buildings and land, so Sears has either been divesting itself of one or both, as well as determining some other methods of cost reducing those components of their business model.
A couple of prime examples of these strategies are right in my backyard in New Jersey. Sears owns the building that is home to their Freehold Raceway Mall location, in order to control some of the costs the company consolidated their inventory from multiple levels of the store onto one level. They subsequently rented out the other two levels to an Ireland based company called Primark, a retailer of discounted products, mostly clothing brands.
In Middletown, the Sears location and the large piece of land it sits upon was sold to Investors Bank. The bank is now constructing a new branch location at that site, and most certainly has some kind of long range plan for the development of that land in the future. Most retail and financial market experts put the time frame for the bankruptcy and demise of Sears at 18 to 24 months from now.
It still boggles my mind that Sears, such an iconic retailer will cease to exist in potentially that short a period of time. I always think of those employees who will be out of work, some of whom have undoubtedly served the company for many years. These same workers have a set of skills and experience in the retail field which is shrinking and may have a difficult time finding new employment.
Conversely, Sears could not seem to get it right, they were missing that connection with the consumer. They were the retailer that was an afterthought in the minds of the average consumer. Sears is thought of as a place where you get tools or tires or a dishwasher; and not where you would get a television, a jacket, or a pair of sneakers. They could not seem to connect the value of their full complement of products to the consumer in the way that Wal-Mart and Target most certainly have accomplished.
The management at Sears keeps telling Wall Street that they are in the middle of a “turnaround” but that has not seemed to materialize. I liken it to the professional sports team that is in seemingly a constant rebuilding mode and never seems to turn that corner where the results manifest themselves tangibly.
Sears CEO, Eddie Lampert, has stated again this week that the company will not close down the Kmart division of the business, which is seen as an anchor around the neck of the entire business operation. They will continue to close Kmart stores that are “underperforming” as they recently closed my local Kmart here in New Jersey. They will not shutter the entire division. I think that this is a mistake and that there is a point where you have to start bailing the water out of the ship before it sinks further.
The business model for Sears in this turnaround phase is a case of “too little, too late” as the saying goes. The damage has already been done. The executive team is now focusing on selling off the brands that are most profitable, closing down lapsed consumer credit lines, and whittling down their overhead costs through the sale of real estate holdings or through sublet type agreements as I mentioned similar to the location in Freehold.
Those are all signs that the executives are trying to maintain what little profitability remains in the business. Therefore they can divide up those revenues when it comes time for them to take the “golden parachute” ride before the operation shutters the doors for good.
The demise of Sears is inevitable it seems, and it is sad because I am sure that most of us at a certain age have memories of shopping there, or of our parents bringing home a picture of the new Kenmore refrigerator. I remember going in the garage and seeing all of my father’s Craftsman tools or getting a Die Hard battery for one of the cars during a harsh winter. My mother would take me to Sears to get clothes for an athletic team I had joined.
All of those instances and so many more will remain memories that other generations of American children will never have. That is due to poor business decisions by Sears, marketing campaigns that consistently missed the target, and the societal shift towards online shopping and away from traditional retailers. It is a scenario where it is essentially “adapt or fail” and Sears failed to adapt in time to save an iconic American retail brand from joining the long list of other retailers who no longer exist. It is a sad trend overall, but one that is a harsh new reality.