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Sears Holdings (NASDAQ: SHLD) 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.
People crowd at the renovated Sears store. Image source: Sears Holdings.
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.