This decline in sales has been a steady trend for both retail stores and the results of the holiday shopping season was the final indicator that some action needed to be taken to address the poor performance. A Strategic Sourceror blog from last month also hinted that a move like this was going to take place. Unfortunately, the decision made will lead to several job losses. Many industry analysts believe that the company’s weak sales figures are the result of several issues and challenges:
- “Sears’ reluctance to invest in stores and service” – The Businessweek article stated that “Sears is spending less than a quarter of the $8 a square foot that retailers typically invest to maintain stores.” This is reflected in the cleanliness of stores, which some customers have complained is not up to par with Target and Wal-Mart.
- Strong competition – Wal-Mart, Target, Macy’s, Kohl’s, and others all have a strong presence in the department-store sector and experienced an increase in sales this year during the holiday season.
- Weak economy – The weak economy in general is forcing Sears’ and Kmart’s target market of low- and middle-income shoppers to cut back on spending.
- Kim Kardashian – In August of this year, Sears launched the Kardashian Kollection, a clothing line developed by Kim and her two sisters, Kourtney and Khloe. Sears had high hopes for this line to help sales significantly; however, it has not met expectations and the promotion of the new line was in parallel with all the drama unfolding from Kim’s divorce from Kris Humphries. Some consumers have even gone as far as signing a petition agreeing to boycott any company that sells Kardashian related merchandise.
Since the merging of Sears and Kmart in 2005, the venture has been an ongoing struggle. Chairman Edward Lampert has been calling the shots along the way and has already reduced costs through the same strategy as the one he has now. He has closed 171 large U.S. stores and cut headcount by about 12 percent.
The Associated Press article stated that Sears “declared that it would no longer prop up ‘marginally performing’ locations.” Therefore, these locations might be the starting point for determining which stores close first. “The company pledged to refocus its efforts on stores that make money.” The news of the closings led to a 27% drop in Sears’ stock which is the lowest since April 2003. The cost reduction strategy to close underperforming stores is “expected to generate $140 million to $170 million in cash as the company sells those stores’ inventory. Selling or subleasing the properties could generate more money.” Businessweek stated that “the chain plans to reduce fixed costs by $100 million to $200 million.”
When it comes to the company’s supply chain, vendors are not limiting orders just yet but they are keeping a close eye on the steps the company is taking to become more financially stable. Gary Balter, an analyst with Credit Suisse Group AG in New York stated to Businessweek that “if vendors are comfortable shipping to them, they (Sears) could go on for years. Their balance sheet is fine, but it’s usually vendors who decide and if they pull the plug, then the company has no choice and they have to file for bankruptcy protection.” More efforts need to be taken besides closing stores and cutting headcount. Hopefully some additional changes are implemented to help further improve Sears' position in the industry in order to prevent more job losses.