After $2 billion loss, Sears now ‘beyond repair’
Embattled US department store operator Sears has posted another massive quarterly operating loss leading one seasoned analyst to describe the retailer as “beyond repair”.
The company lost US$717 million for the latest quarter – even worse than the $539 million during the same quarter last year. That took its full-year loss to just shy of $2 billion.
“Not only do these staggering figures fail to show even the faintest glimmer of improvement, but they are also a clear symptom of a business that is broken and now well beyond repair,” observes Neil Saunders, MD of GlobalData Retail.
“Not only are sales down, but the pace of decline has accelerated sharply. At total level, some of this is the result of store closures across the year – something which is sensible and prudent in light of changing patterns of demand. However, much of the dip is also attributable to a slump in the number of shoppers visiting Sears and Kmart, and a continued deterioration in conversion rates among those that do.”
Saunders says the blunt truth is that Sears is simply not delivering what consumers want.
“On the contrary: its product mix, its store environments, its customer service, and its general approach to retailing are actively deterring consumers from visiting. Kmart is in much the same position. In ordinary times this would be more than sufficient to cause major problems; in today’s pressured and competitive retail environment these things will ultimately prove fatal.
“The difficulty for Sears is that it isn’t just the sales side of the equation that looks bad: profitability and the balance sheet are also highly unfavorable. Every quarter, the company emphasises that it is working its way to profitability; and this latest reporting period is no exception with the promise being made that the firm has a “clear path toward profitability”.
“However, where Sears sees a path, we see a tangle of extremely dense vegetation through which it is near-impossible to navigate.”
The strategy of selling assets like its Craftsman brand and properties to produce cashflow to keep the business running is “little more than a short term survival tactic”, he says, the funds propping up a failing business rather than generating long-term growth.
“The company’s asset base is being diminished at a time when total long-term debt has risen from $2.2 billion to $4.2 billion.”
In the last quarter Sears has launched a new Mastercard which allows customers to earn Shop Your Way loyalty points everywhere they buy, and a similar partnership which rewards people for taking an Uber.
“These are all well and good, but they do nothing to resolve the broken proposition at Sears. As such, they are akin to taking an Advil to cure a heart attack.”