Summary
The second quarter "surprise" loss by Sears may now become the order of the day. Opportunities continue to be squandered as this once greater retailer looks more and more like a rudderless ship. Continuing efforts to cut costs and reduce inventories do nothing to bring customers into the stores. Without new customers and customers who keep coming back, Sears is headed toward an unfortunate and untimely end.
Analysis
With analysts who expected a 35 cent profit surprised by a 17 cent loss, Sears Holding Corp may be accelerating toward an untimely end. Reading the Second Quarter Results press release one finds no mention of customers, the effort to find new customers or any hint at growth plans. The focus was cost cutting, debt reduction and share buy backs. That is all well and good for a financially focused enterprise. But for a business whose survival depends on customers repeatedly entering the store looking for something to buy, such highlights send an alarming signal.
Over the past several months there have been several indications that the business is on the wane:
- Inventory levels are being continually reduced to a point where some stores appear under-stocked.
- There has been significant and continuing turnover in the management ranks with many new faces trying to find their way around the offices while rushing to put together plans and programs that are behind schedule.
- A number of analysts point to an entire generation of customers being drawn away by Home Depot, Lowes and Target.
- A well thought out 12 month retail planning cycle may have been replaced by a panic driven "get something into the stores" atmosphere.
- Promotional efforts seem to be relying more and more on instore signage and display which essentially preaches to the choir and does little to bring new traffic through the doors.
As evidence of the last point above, consider Sears' Christmas effort launched in the last 7 weeks.
First, the Christmas in July event was really a non-event as written previously. The on-line the effort appeared halfhearted. When it was first announced, the Christmas Layaway idea (borrowed from Kmart) was touted as a big idea. However, it carried enough terms & conditions that it appears to have gotten little traction.
Now two weeks after the end of the Christmas in July promotion comes a second Christmas promotional idea that could have some real muscle, but it appears to be getting little support and attention.
At the start of this week Sears announced their new Christmas Club Card. Simply stated it is a stored value card to which the customer can add funds and that will pay a 3% reward on the balance on the card on November 14th. On the surface this actually seems like a real good idea. So good in fact that one has to ask 1) why was it not announced earlier in the year, 2) why wasn't it part of the Christmas in July program, and 3) why wasn't it splashed all over the media? This should have been the big idea for Christmas In July. It is layway without having to commit to a specific item.
While this may be a great idea (and I happen to think it might be because Sears gets the cash for the sale weeks or months in advance of the actual purchase), why does everything Sears now does feel rushed, not completely thought out, and under-funded? It may be indicative of a retail business in great difficulty and approaching its final curtain sooner than we may think. They might consider kicking off the 2010 Christmas Club Card program around Easter next year.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
