The golden arches have become tarnished in recent years, and now it looks more like a business in serious decline. 

One is an aging department store operator and the other a mature hamburger stand, but McDonald's (MCD -1.07%) suffers from the same malaise afflicting Sears Holdings (SHLDQ), and the decline of the old-line retailer may foretell what the future holds for the restaurant operator if it does not implement a successful turnaround strategy.

But there may be no magic elixir at all, and McDonald's investors may be able to see what their investment will look like in the years to come by watching the slow demise of Sears. The parallels between the two, while not always exact, remain striking nonetheless.

A middle America icon
Sears once sat atop the department store industry, bringing to middle and low-income shoppers a variety of merchandise at affordable prices. The ubiquity of its stores meant that for decades, it was the destination of choice for consumers.

In 1972, two out of every three consumers shopped at its stores in any three-month period. Half of all Americans held a Sears credit card, and its sales alone accounted for 1% of U.S. gross national product.

While a lot of changes to the U.S. economy in the 1970s upended that dominance, by the 1990s, retail was undergoing a seismic shift that pushed Sears into decline. Wal-Mart was burnishing its reputation as the King of Retail, siphoning away the price-sensitive consumer at the low end of the income chain, while mid-tier retailers like Macy's and J.C. Penney skimmed off middle-income customers.

Then a little known company called Amazon was founded in 1994 and forever altered how people shopped. It also created financial hardships for brick-and-mortar retailers and their portfolios of thousands of physical stores.

Sears was left trying to offer the lowest common denominator to whatever shoppers remained, but low price without a commitment to customer service leaves little hope of recovery. Not even Wal-Mart has as low a reputation as Sears, though it should view the nexus between low prices and poor customer service as a warning.

Sears is looking to reduce its portfolio of stores to save money, but it will do nothing to spur sales. Photo: Nicholas Eckhart via Flickr

Not all that is gold glitters
Even with all its troubles, some 68 million people visit McDonald's restaurants every single day, equivalent to about 1% of the world population. Its $27.4 billion of revenues last year would place it as the 100th largest economy in the world. And according to the book Fast Food Nation, one out of eight U.S. workers has at one time or another worked for the burger chain.

It also serves a low to middle-income clientele, the cream of which has been skimmed by the rise of better burger shops like Shake Shack, The Habit, and Five Guys. And though it does not face a threat from e-commerce, it is being challenged by the likes of traditional convenience stores that have been adding more fresh food options to their counters and attracting more customers.

According to the market researchers at Technomic, convenience stores have been stealing fast food customers away at an alarming rate, with a survey last year finding 26% of C-store customers not visiting their local burger shop, because they had already picked up something to eat at their local 7-Eleven or Wawa.

Like Sears before it, which tried to appeal to customers looking for more fashionable threads by adding clothing lines from Kim Kardashian, Nikki Minaj, and Adam Levine, McDonald's has tried to woo back customers who can afford overpriced hamburgers by adding dashes of fast-casual flair, including new and fresher ingredients, a customizable menu, and most recently, a $5 sirloin burger.

But again like Sears, one of McDonalds' biggest challenges has been customer service. The American Customer Satisfaction Index ranks McDonald's dead last in its annual customer satisfaction survey, a spot it has occupied pretty much every year since the index started in 1995.

McDonald's has shown a propensity for investing in its stores, but in an economy where its core customers keep losing ground, it may not matter.

Diverging paths
Of course, the parallels are not perfect. Sears chairman and CEO Eddie Lampert exhibited disdain for investing in his stores and seemingly indicated an affinity for slowly dismantling the parts that made Sears great: spinning off Orchard Supply, Sears Hometown & Outlet Stores, and Land's End, and attempting to shed Sears Canada and perhaps even Sears Automotive.

In its favor, McDonald's has shown a willingness to invest and upgrade its aging stores, but a slow economic recovery has depressed its core customers. In fact, McDonald's last resort may be to follow in Sears' footsteps, squeezing any remaining value out of the company.

Sears recently created a real estate investment trust, selling hundreds of stores into the entity. It is also creating joint ventures with shopping mall operators to sell its half of the business to the REIT. In short, Sears is finally using its real estate to create value for shareholders -- that was always the largest asset anyway.

McDonald's own vast restaurant empire has been a target for investors who believe the restaurateur should sell or refranchise a good portion of its holdings. They say it could inject its stock with renewed vigor if it spun off or sold its real estate holdings into a publicly traded REIT. Another option open is the sale and leaseback of its 36,000 restaurants, a process that involves selling the buildings and land they sit on and then leasing them back. 

Unfortunately, there does not seem to be any simple options to address the challenges plaguing both companies -- they ultimately need more shoppers and more diners. Sears Holdings is still an eventual bankruptcy risk and McDonald's, facing a future of vastly diminished returns, does not qualify as a strong long-term investment.