Yahoo Finance 3 Reasons Sears Stock Shows Little Sign of Hope (SHLD)
In the retail sector, there are very few stories as dire as Sears Holding Corp. (SHLD). Years of mismanagement and lack of understanding in how to respond to the changing retail landscape has left the company seemingly unable to respond to its issues.
Sears is hemorrhaging money -- it posted a net loss of $471 million in the first quarter, a 55 percent increase in losses from the year before. SHLD stock has fallen 37 percent in the past year and 71 percent over the past five years. Things have gotten so dire that very few stock analysts even cover the company anymore.
Revenue that topped $35 billion in 2014 is projected at just $25 billion this year. Sales for the current quarter are projected to be $5.43 billion, a 12.5 percent decrease from the same quarter a year ago.
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Sears is searching for anything that might provide some momentum, including expanding the lines of their most productive names, such as Kenmore and Craftsman. But after years of cost-cutting efforts, including reducing employee headcount and stores, it has very few options to maneuver.
Few strategies remain viable. The decline of Sears has been documented well. Once the largest player in the space, Sears has less than 5 percent of market share in total retail, according to CSI Market. "You're talking about a company that's a pale shadow of its former self," says Craig Johnson, CEO of research and consulting firm Customer Growth Partners. "It's now the 98-pound weakling."
Part of the reason for this is because of its cost-cutting efforts. This year, it announced that it would close 68 Kmart stores and 10 Sears' locations. That comes after announcing it would close 235 stores in late 2014. On top of that, layoffs have hit stores hard, affecting customer service.
"Once you lose customers, it's hard to win them back," says former Sears vice president Steven Dennis, who has called on the company to liquidate. "Sears has been chasing people away for 10-plus years."
It also makes it difficult to adjust to the changing retail dynamics, including its strategy to invest in growing its online presence. Most brick-and-mortar stores try to achieve a competitive advantage over the likes of Amazon.com (AMZN) by allowing in-store pickup on online sales, but Sears hasn't been able to cash in.
"They've done some fairly innovative things (online)," says Dennis, who's now a retail consultant and founder of SageBerry Consulting. "But they never addressed why you want to shop (at Sears)."
Its brands now lack luster. The one thing Sears needs are new revenues, Dennis says. Lagging sales have made investing in the company nearly impossible, and it also makes raising new funds difficult.
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One way Sears has sought to do this is by expanding their brands, Kenmore, Craftsman and DieHard, into new markets, sometimes in unexpected ways. The appliance brand Kenmore will also now include televisions. DieHard, known for its car batteries, will now also have a line of Bluetooth speakers and chargers. Craftsman, the tool line, will now offer garage door openers.
But it may be too little, too late. In the appliance space, Sears used to hold the top spot in market share as early as the beginning of the 2000s. But due to a lack of investment, Home Depot (HD), Lowe's Companies (LOW) and even Best Buy Co. (BBY) has cut into that share, and in most cases replaced Sears atop the rankings.
Still its hardline business, which includes the three big brands, accounts for 43 percent of the entire company's sales. This leads some, including Johnson, to suggest Sears should dump apparel, reduce the store sizes and only focus on its hardline business.
The value is in real estate. Efforts to turn around Sears must start with whether or not the company actually wants to turn things around. "The perception is that (leadership) has been milking the place," Johnson says.
That's because CEO Eddie Lampert, who took the helm in 2013, has focused more on selling company real estate than investing in strategies to increase retail growth. Sears only owns 43 percent of its stores that are located in malls. That's down from 61 percent in 2010. Selling parts or all of its mall locations has been a way for Lampert to ensure money comes in to hold off the bleeding from the retail business.
And the real estate is something others are interested in -- Warren Buffett invested $70 million in 2015 for an 8 percent stake in Seritage Growth Properties (SRG), the real estate investment trust that Sears spun off last year to raise funds for its retail business.
Of course, this investment hasn't turned around the retail side in any sense of the word. But even if Sears tried to change strategies and focus on customer service again, Lampert "could never come up with enough money to do that," Dennis says.
The other possibility is a buyout. But "it would take a visionary buyer or a highly credulous," one to even consider stepping into Sears' sinking ship now, adds Johnson.
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That leaves few options for a turnaround and even fewer options for Sears' long-term future.
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