Sears Holdings Corp. Struggles to Compete with Retail Giants

Strategic Insights -

Sears Holdings Corp. has failed to halt its decline in sales despite various strategies implemented by Chairman Edward Lampert, who acquired Sears in 2005 through a merger with Kmart. The company's shares have plummeted 55 percent in 2011 alone, and it has been a "mismanaged asset," according to Gregory Melich, an analyst at International Strategy & Investment. The nation's largest department store chain reported a 5.2 percent decline in same-store sales for the eight weeks ended Dec. 25, and plans to close as many as 120 locations. Meanwhile, the department-store sector is expected to see a 4 percent increase in sales for the same period.

Key Takeaways:

  • Sears Holdings Corp. has reported 18 consecutive quarters of declining sales since Lampert's acquisition in 2005.
  • The company has closed 171 large U.S. stores and cut its headcount by about 12 percent since 2005.
  • Sears employed 312,000 people as of January 2012, down from 355,000 in June 2006.
  • The company's shares have fallen 27 percent to $33.38 on Tuesday, the largest decline since April 29, 2003.
  • Sears has been a profitable investment for Lampert's hedge funds, which paid about $16 a share for the stake in the chain.
  • Lampert's efforts to revamp Sears, including converting Kmart stores to Sears Essentials and introducing Sears Grand, have failed to reverse falling sales.
  • The company is accelerating its franchising efforts, leasing space to retailers such as Forever 21, and licensing its brands to other companies.
  • Sears is spending less than a quarter of the $8 a square foot that retailers typically invest to maintain stores.
  • Earnings before interest, taxes, depreciation, and amortization will be less than half of last year's $933 million in the fourth quarter.

Statistics:

  • Sears Holdings Corp. shares have fallen 55 percent in 2011 alone.
  • The company plans to close as many as 120 locations.
  • Same-store sales declined 5.2 percent for the eight weeks ended Dec. 25.
  • Department-store sales are expected to increase 4 percent for the same period.
  • Sears employed 312,000 people as of January 2012, down from 355,000 in June 2006.
  • The company's shares have fallen 27 percent to $33.38 on Tuesday, the largest decline since April 29, 2003.

Sources:

  • "Sears Holdings Shares Plunge 27% Amid Weakening Retail Sales" by Cotten Timberlake and Miles Weiss, Bloomberg News, January 10, 2012.
  • "Sears Holdings to Close as Many as 120 Stores" by Cotten Timberlake and Miles Weiss, Bloomberg News, January 10, 2012.
  • "Sears Holdings Fourth-Quarter Earnings to Disappoint, Analysts Say" by Cotten Timberlake and Miles Weiss, Bloomberg News, January 10, 2012.
  • International Council of Shopping Centers, "Monthly Survey of Senior Retailers," December 2011.
  • International Strategy & Investment, "Report on Sears Holdings," August 2011.
  • Credit Suisse Group, "Report on Retailers," August 2011.
  • Morningstar Inc., "Report on Sears Holdings," January 10, 2012.