Sears Holdings (NASDAQOTH:SHLDQ) recently celebrated the reopening of a 56-year-old store following a major renovation that saw its footprint shrink 75% while delivering an updated interior with a contemporary design.
The store -- in upscale Oak Brook, Illinois -- will carry the merchandise you'd expect to find at Sears, including apparel, appliances, sporting goods, and lawn and garden supplies. But shoppers can also seamlessly move between in-store and online offerings. It's something of a store of the future for the troubled, old-line retailer -- or it would have been if Sears had built it 10 years ago.
The gathering storm
Sears seems to be careening toward bankruptcy. Years of failing to respond to the changing retail landscape and address challenges have finally caught up with the company and there looks to be little that can avert a filing for bankruptcy protection. The retailer that owns the Sears and Kmart brands just added a restructuring expert to its board, leading to speculation the end might be coming fast. A Wall Street Journal article saying Sears Holdings could file for bankruptcy protection as early as this week sent the stock plunging on Wednesday and it closed the day down about 17%.
Late last month, CEO Eddie Lampert sought a bold bailout of Sears that would see the retailer sell off large swaths of real estate to pay down $1.5 billion in real estate loans; sell various assets like Kenmore brand appliances to Lampert's hedge fund, ESL Investments; and exchange old debt for new that could be converted into Sears stock, not cash. It's an audacious plan, and one that likely won't work.
Unveiling the reimagined store is like rearranging deck chairs on the Titanic. Had Lampert actually cared enough to invest in his stores a decade ago, he might have had a chance to save Sears. But instead he chose financial gimmicks such as total return swaps and stock buybacks that allowed Sears to keep up the appearance of improvement while it was hemorrhaging cash and customers. Along the way, he sold or spun off brands and retail operations, all the while dismissing the need to spruce up his stores because he believed customers weren't in it for decor and fixtures.
The result was predictable. Revenue of almost $51 billion in 2007 atrophied to less than $17 billion last year, while net profits turned into net losses. Long-term debt widened from $1.9 billion to $2.2 billion even though the number of stores plunged from over 3,800 to just 1,000 (today there are 866, and dozens more will be closed soon). And businesses and brands including Orchard Supply Hardware, Sears Hometown & Outlet Stores, Lands' End, and Craftsman Tools were calved off to raise cash.
A glimpse at what could have been
To be sure, Lampert is Sears' largest shareholder and debt owner as he has injected his own money and that of his hedge fund into the retailer. But that mostly came about as stop-gap measures to keep the business afloat. What was needed from the beginning was an owner who was willing to spend money on the business -- like it has finally done with its reimagined store in Illinois.
In addition to shrinking that store's square footage from 250,000 down to 62,000, Sears has modernized its look with open sightlines to all corners of the store, a welcome center and lounge with phone-charging stations, and a kiosk to order goods online. This is the kind of store that quite possibly could have saved the retailer had it been implemented 10 years ago, or at various other points along the way. Coming now, it has all the earmarks of a last, desperate attempt to save some vestige of its former self.
It would be great if this remodel was a template for how Lampert would proceed with what remains of Sears' fleet of stores, however many it finally ends up with. But it's doubtful he will, at least not to the degree he needs to, if for no other reason than there is little cash left to do so. In the end, it's too little, too late for the venerable retailer.