Analysis: Sears has failed on every facet of retailing
The news that Sears has hired advisors to prepare for a possible bankruptcy filing comes as no great surprise. In our view, this is the inevitable end game of an effective liquidation process that has been going on for many years. Throughout that time the sale of various assets along with injections of cash from Eddie Lampert have kept the ailing retailer from going under. However, the activity is akin to bailing out water from a holed ship: it keeps the vessel afloat for longer but does nothing to sort out the underlying problem.
The problem in Sears case is that it is a poor retailer. Put bluntly, it has failed on every facet of retailing from assortment to service to merchandise to basic shopkeeping standards. Under benign conditions, this would be problematic enough but in today’s hyper-competitive retail environment it is a recipe for failure on a grand scale. That failure has manifested itself in lost customers, lost market share, and a brand that has become tarnished and increasingly irrelevant.
Management’s consistent inability or unwillingness to address these issues is why we have never been confident about the long-term survival of Sears. It is all well and good to undertake financial engineering, but the company is in the business of retailing and without a clear retail plan, the firm simply has no reason to exist.
There is a slim chance that Sears may avoid the latest bankruptcy threat, especially if lenders and stakeholders quickly agree to the restructuring program put forward by Eddie Lampert. However, in our view, this is not a long-term solution; it is simply a way to prolong the life of a company that has long since lost the will to live.
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