Is Sears the slowest retail failure of all time? I can’t think of a time when people shopped at Sears and believe you me, I’m no spring chicken! Now, of course some people must shop there, but who are they? Outside of maybe their garages where they can sell oil changes, tires, batteries, etc. is there anyone who thinks of Sears as a must go to outlet? For as long as I can remember, Sears has been used as an example of a “value” stock. The story has, since the 80’s at least, gone something like this: [Sure, nobody shops there and their prices are too high and their layout too old and their reputation too old-fashioned, but they have great real estate. Since the company was one of the first national retailers, they have prime real estate all across the country. Therefore, even though Sears is a horrible company, the value of its real estate is worth more than the actual stock price]. That story, or a close version of it has stayed steady for over 30 years. And maybe due to those prime locations, they have managed to have just enough sales to hang on by a thread for years. Now, of course, they own another “value” company in Kmart to add up to one giant real estate corporation. Yet, the story never seems to change:
Earlier on Thursday, Sears reported a wider quarterly net loss on tepid sales at both chains and margin weakness due to more promotions targeting rewards members.
What has changed recently though is the method being tried to salvage the mess. In a sorry tale familiar to The Good Earth fans, it appears that it is time to sell off some of that prime land. While that will bring in some cash (obviously) the question is what is going to be done with the money. After all, there are now less places to make a sale and it’s not like they are known as online giants, so what’s going on? One thing is for sure and that is that the “value” story told for these many years appears to be spot on:
Hoffman Estates, Illinois-based Sears recently refinanced some debt, sold its stake in eight properties it owns with the Westcliff Group, and terminated some store leases in Canada. It said it was on track to generate $2 billion of liquidity during the fiscal year.
Of course, “terminating leases” is another way to say going out of business. Yes, you do “generate…liquidity”, but you also don’t have a store. It’s difficult to increase sales at those locations. As for their plans for all of this new found financial flexibility, well it’s difficult to be optimistic:
The company is trying to engineer a turnaround. Sales have been falling since 2005, when Lampert merged Sears Roebuck & Co and Kmart in an $11 billion deal.
“I would have seen the tide turning by now,” he said. “It hasn’t turned yet. My expectation is that we have a resourceful group of people, and we are going to figure this out.”
Oh. It looks and sounds like all of the Sears stories going back decades. This time may be different though in that the company really does seem willing to sell its assets. This could be great news for shareholders, at least temporarily. But what happens in the long term? After all, closing stores, selling the real estate, canceling leases etc. doesn’t really sound like a great strategy, especially when they admit that they haven’t “figure(ed) it out” yet. For those of you not assigned The Good Earth in high school, I’ll give you a hint — spoiler alert! — it doesn’t end well.
This article was first published on http://moneyprime.com.