Sears Could Get a Second Chance as the Recession Evolves.

Implications: Chairman Lampert would have prospective investors believe Sears' problems are because of the recession.  That's understandable, since he isn't likely to admit that he blew it squandering billions on overvalued stock buy backs, while reducing its retail business to the worst operation in the industry.  Having said that, I think the consumer will be radically different as the recession unfolds which means most retailer may need to reinvent their offer to attract new and old customers alike.  If that occurs, it could level the playing field for Sears.  It's also a risky business that more successful retailers may resist which could give Sears a head start.  The question: Is Lampert up to the task? 

Analysis: Having been unable to turn Sears and Kmart around, Chairman Ed Lampert bragged about selling the companies undervalued assets.  Of course that hasn't happened either.  The reason, the last thing anyone wants today is a mediocre $50 billion retail business which will take billions more to turn around.  Having said that, the only thing developers want less is hundreds of big boxes for sale, especially in this economic environment.  That leaves little room for anything but hope.  That is, hope that a ‘big deal’ comes along to absorb all of Sears and Kmart's losses, while leaving enough value for Lampert and Ackerman to save face as they exit the business.  But, that's not likely to happen either.

Ironically, if Lampert had any retail vision at all, now is the time to reposition Sears.  I think the consumer will be radically different as the recession unfolds which means many retailer’s will need to reinvent their offer to attract new and old customers alike.  If so, Sears could have the advantage of already be in a state of change.  There’s any number of struggling retailers that could be combined to reinvent the company.  Really that phrasing is inaccurate.  Reinventing Sears isn't the issue, restructuring 20th century retailing to fit today’s realities should be what Sears’ mission is all about.

Sadly, 20th century retailing is still drives most retailer’s strategies.  However, after only seven years in the new century, the economic environment is already changing consumers’ attitudes about value.  For instance, escalating energy costs have already changed buying behavior.  Realistically, energy costs have just starred their meteoric rise which can only fore tell the magnitude of subsequent changes in consumer preferences.

Rising food costs have also changed consumer behavior.  Historically, the US has been the bread basket for the entire world, but it remains to be seen if we will be able to afford the fruits of our farmer’s labor in the 21st century.  While millennial and the gen Y may prefer 'instant gratification', economic realities may mean less trips to Mickey Ds and TGI Friday and more cooking at home, but that home will probably won’t be owned, but rented.  Gen Z may well be known as America’s homeless generation and the less educated one too.  Notwithstanding, failing home prices today, gen Z will struggle with the cost of housing and education when confronted with much higher cost of energy, food, and transportation.   

US median incomes have actually fallen in nominal dollars over the last seven years reducing the buying power of Middle America.  The reduction is significantly greater in constant dollars.  While, some may make a political issue about that reduction, the reason is more structural than partisan.  The fact is US businesses are reducing the number of people they employee or at the least paying less for the job.  Other businesses are out sourcing jobs to reduce costs.   In part the cost problem is out dated infrastructure to produce new technology, efficient transportation, and an abundant energy supply.  These are the things the US had a competitive advantage in 50 years ago, but has lost today.    

While retailers can’t materially effect either government or private industry investment decisions, it can adapt its methods, offers, products, and services to fit the realities of the times.  That’s were a Sears Holding might fit in.  Unless Sears radically changes, it’s value has no place to go but down.  Just what the consumer environment will look like as the country rebounds remains to be seen, however, Sears as it is currently structured will be no better prepared to compete then than it was in the past.   

In Sears’s favor is brand awareness and it’s accessibility too.  Years of mixed messages means Sears’ image is fluid.  With the exception of Wal-Mart no other brand has a well defined image anyway.  Sears could be just about anything it wants to be, so long as it isn’t Wally World.     

What Sears needs to do is change its mission from ‘let’s do a deal’, to ‘let’s sell a lot more of something’.  But it will take retail visionary to create just what that something will be.  A merchant with one foot in the last century and the other firmly planted in the here today and new investors willing to invest in retailing’s future.  In an uncanny twist of fate, Sears might just get a second chance.  The question:  Is Lampert up to the challenge?