Ripped Toughskins

Sears Holdings, which owns Sears and Kmart, announced today that it is closing all its stores.  After 126 years Sears is done.  This CNBC article has a good summary of Sears' decline.  I don't believe Sears' death was inevitable.  It did face tough competition from Walmart and Target and then Amazon, but Target and Walmart have not gone out of business due to Amazon.  Sears did not have the retail management expertise to face its rivals and shifting consumer tastes and buying patterns.  This passage from the CNBC article gets to the heart of what happened to Sears:

(Eddie) Lampert saw opportunity in both (Sears and Kmart). The former Goldman Sachs intern had wowed investors with his ability to turn around the auto parts store . Armed with his hedge fund ESL Investments and the confidence of a man nicknamed “the next Warren Buffet,” Lampert believed he could concoct a similar turnaround in Kmart and Sears. He believed he saw value where others didn’t.

Lampert bought Kmart out of bankruptcy through ESL and ultimately combined it with Sears, to create Sears Holdings Corporation.

But Lampert was battling a national decline in the department store industry, as shoppers abandoned the mall and favored casual over formal wear. Department stores accounted for 14.5 percent of all North American retail purchases in 1985 but only 4.3 percent last year, according to Neil Saunders, managing director of GlobalData Retail. Sears’ peers, like Bon-Ton and Mervyn’s, whittled away, while rivals like and poured money into their businesses to be among the ones left standing.

Walmart and Target proved relentless in their competition. The companies scaled quickly and poured money into private label brands, which were better in quality than those sold at Sears and Kmart.

As Sears’ competitors invested in its stores, Sears took a different approach. Lampert believed that a strong loyalty program and data made investing in stores and advertising optional, people familiar with the situation have said. Then, as Sears’ sales fell and its losses piled up, it no longer had a choice — investment fell out of reach.

Sears shrank its store-base, in a desperate attempt of to regain profitability. The stores that remained were in disarray, with outdated fixtures, dark lighting and piles of unwanted clothes. Sears lost relevancy and its customers’ loyalty.

I am not upset about Sears, but it is another example of private equity buying a retailer and then not having the retail skills to operate the business.  Confidence and access to capital are great, but they are not the same as retail expertise.  If you are a landlord and a private equity firm buys one of your retail tenants you better start reserving for the day that tenant stops paying rent.

Separately, and much cooler than Sears' closure, is this episode of the podcast 99% Invisible about Sears Roebuck selling complete home kits through the mail.  The Sears' homes included everything to build a home, all the way down to light and plumbing fixtures, along with complete instructions.  Sears may soon be gone, but some of its mail order homes and other buildings are still in use.