Sears Holdings (Nasdaq: SHLD) reported a hefty $2.4 billion loss for the fourth quarter while announcing plans to boost liquidity by spinning off and disposing some of its stores.

Boosting liquidity is all well and good, but what Sears didn't mention in its earnings release was how it plans to correct its flagging sales, which have been a major problem for the Illinois-based retailer.

I don't want to go there...
Sears' revenue tumbled 5% to $12.48 billion in a quarter that sits pretty on holiday sales and normally proves fruitful for retailers. Domestic same-store sales for the company declined by 3.4%, with comps at Sears' stores falling 4.1% and those at Kmart dropping 2.7%.

While Sears struggled during the holiday season, peers such as Target (NYSE: TGT) and Wal-Mart (NYSE: WMT) had reason to cheer. Target's fourth-quarter sales rose 3.3%, accompanied by a 2.2% rise in same-store sales. Wal-Mart reported its second consecutive quarter of same-store sales gain as comps rose 1.5%.

Sears blamed a fall in demand for consumer goods and appliances for the decline in domestic sales, but as Ron Friedman, a partner at Marcum's retail and consumer products wing, puts it, the problem lies in the fact that Sears' stores are "old and they're run down." Sears' stores have been wearing the same look since 2005, when hedge-fund billionaire Edward S. Lampert combined Sears and Kmart into one, and the same company hasn't made any effort to remodel. It is no surprise that more swanky and modern retailers have managed to lure Sears' customers away.

Are spin-offs and closures the way to go?
Instead of fixing this problem, Sears is looking to shutter stores and spin off some businesses. The company will spin off its Hometown and Outlet businesses, as well some hardware outlets, which include nearly 1,250 stores. That's not all: Sears will sell another 11 stores for $270 million to General Growth Properties (NYSE: GGP) by April. In December, Sears had announced the closure of 120 of its underperformers. Through these initiatives, Sears expects to raise around $1 billion.

The retailer ended the year with over $3.2 billion liquidity, and CFO Rob Schriesheim said it has access to another $1 billion through its credit facility and a further $760 million via a second lien loan. What Sears seriously needs to do is invest in itself and overhaul its uninspiring image. According to research by the International Strategy & Investment Group, retailers such as Wal-Mart spend somewhere between $6 and $8 per square foot on updating store image, which includes new cash registers, floor tiles, and various touch-ups. Sears spends around $1.50 to $2 per square foot. This calls for a major change.

Shuttering stores and getting rid of failing businesses is one thing, but changing its image can go a long way in attracting customers and boosting sales. Maybe it could do well by taking a page out of retailer JC Penney's book -- who knows?

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