Login | November 07, 2024
Not your grandfather's Sears
MALCOLM BERKO
Taking Stock
Published: March 5, 2015
Dear Mr. Berko: In 1954, my parents took me to the first Sears store that opened in Oklahoma City. We were impressed with all the merchandise and fantastic displays. Sometimes we'd just drive to Sears to walk around for fun without buying anything. I remember when Dad bought 25 shares of Sears in 1955 and how excited he got when it later split 3-for-1 and he owned 75 shares. And I have two old Sears catalogs from 1948 and 1952, which still look like new. I know Sears is closing stores, sales are down and the stock price has tumbled to the low $20s. I have such good memories of Sears, but I wonder whether the stock has hit bottom and whether it would be good to buy Sears, as it has moved back to $38. -- HR, Port Charlotte, Fla.
Dear HR: Sears today is not the Sears you remember from 60 years ago. If Richard Sears and Alvah Roebuck were alive today, they'd turn over in their graves seeing how the mail-order catalog company they founded in 1887 has changed. By 1894, the Sears catalog had grown to 520 pages and was known in the industry as the consumer's bible. Those catalogs featured bicycles, sporting goods, stoves, sewing machines, furniture, automobiles and hosts of other items, and revenues were over $700,000 that year. Today your antiquated catalogs are worth more as collectibles than a share of Sears Holdings stock (SHLD-$38.26).
In 1925, Sears opened its first retail store, in Chicago. It became the largest retailer in the U.S. but was surpassed by Wal-Mart in 1989. In 1993, Sears published its last catalog. That was also the year management realized that Target, Lowe's, Home Depot and Best Buy were eating Sears' lunch.
In 2005, via an ignominious move to gain traction, improve revenues and reduce costs, management allowed Kmart (engineered by Edward "Fast Eddie" Lampert) to purchase Sears. The new company, called Sears Holdings, had $50 billion in revenues from 3,500 locations in the U.S. and Canada.
Sears Holdings enthusiastically began trading at $163, but after revenues reached $53 billion in 2006, it was straight downhill from there. Fast Eddie's ESL Investments owns 62 percent of the company's shares, and good gosh, what a titanic failure this has been. Fast Eddie and his yes men have seriously mucked up this grand retail icon, easily snatching defeat from the jaws of victory. In 2005, few at SHLD, including Fast Eddie, knew squat about running a retail business, and a year later, revenues began their annual decline. Revenues this year are expected to be down by more than 40 percent from 2006, to $31 billion, and the number of locations has declined to 2,200. During the past four years, SHLD has cumulatively lost nearly $7 billion, and losses are expected to continue for the foreseeable future.
Sears has suffered disproportionately from this economic downturn, primarily because of its overwhelming popularity with ethnic and working-class consumers. Sears has always targeted these consumers, whose parents, grandparents, great-aunts and uncles purchased their appliances, clothing and housing-related hard goods from a local Sears store. And these are the consumers who still wear scars from the Great Recession.
Now Fast Eddie figures he can shorten SHLD's path to profitability. He has closed 1,300 locations since 2011, and SHLD's book value has crashed to less than $9 this year from $82. So Fast Eddie, who must raise more money for operating capital, is selling 40 million shares of Sears Canada (a 51 percent-owned subsidiary) at $10.60 to SHLD shareholders. Then he wants to persuade these SHLD shareholders to purchase $625 million of four-year unsecured notes at 8 percent. And Fast Eddie needs to do this as quickly as a bunny before things get worse. But what Fast Eddie really needs is the marketing expertise to change SHLD's image from a store where grandfathers shop to a destination appealing to a younger crowd.
Many observers believe that SHLD can't be profitable in the next few years and will continue to report annual losses. So be happy with the catalogs.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.