Wednesday, December 28, 2011

2012 the end for Sears? We'll see....

What is taking so long for Sears/Kmart to die?

Companies take a long time to die.  About a year ago, I wrote about Sears/Kmart and wondered what the heck was keeping the place in business.  The stores are old, disheveled, and the prices anything but good.  And the foot traffic was pretty dismal.

In Ithaca, New York, there is a Sears, a Kmart, and a Wal-Mart, as well as a Target.  Guess which parking lots are full, and which are empty?  There are maybe a dozen cars at the KMart, and not many more at the Sears.  The Wal-Mart is full to overflowing.  It is hard to find a place to park at Target.

How the heck does Sears/Kmart stay in business?  I thought that at the time, and thought for sure they would go belly up in no time.  Another year passes, and Sears/Kmart continues to bleed to death slowly.  Analysts are calling 2012 as the year they die.  Could be.  Might take longer.

It takes a long time for a company to die.  Sometimes decades.  I wrote before of the antics I saw going on at GM.  Salary employees milking the place for every possible dime.   Hourly workers who showed up for work and slept all day in the can - if they weren't dealing drugs or running numbers.  And cars like the Vega, the Citation, and other automotive excrement, coming off the end of the line, often not in running order - or not for long.

Any rational person would look at that place - in 1980 - and think it would be bankrupt in a few years.  But it takes a long time for a large organization to totter, and then topple.  And when the end comes, it appears sudden, even though the warning signs were there for decades.  GM's problems were endemic since the 1960's, and John Delorean wrote of them back in 1978.  But no one listened to him, and his arrest on drug charges allowed folks to dismiss him as a kook.

Sears has the same problems as GM.  It is selling the equivalent of a 1973 Caprice Classic.  Obsolete, rusty, and poor on gas.  Garanimals and Tuffskin jeans have given way to a line of designer clothes by the Kardashian (sp?) sisters.  Who these people are, I do not know, but I am told, over and over again, by the media, that I should care.  Apparently I am not the only one not to care - their clothing line is selling like lead balloons.

And, like GM, Sears has a huge underfunded obligation in terms of pension and health care for retirees.   And they have an enormous physical plant, in the form of decaying stores, that is more of a liability than an asset.

Perhaps the good news for Sears/Kmart is that they are finally closing stores - and most likely because their lease obligations are up.  In the past, while a store might have been losing money, it was still cheaper to keep it open, as the cost of paying the lease on an empty store would represent a greater loss than the cost of running a money-losing store.  This might explain the stores in Ithaca.

But either their lease obligations are up, or they are losing so much now that it is cheaper to shut down stores.  Either way, it is not a good sign.

Of course, if they had closed down stores and refocused the brand earlier on, perhaps that could have saved the company.  And in an era of online catalog shopping, they decided to cut out their catalog - an odd move.  Their attempts to integrate internet shopping with the network of stores flopped.  Going online to buy and then driving to the mall to pick something up isn't convenient - it is the worst of both worlds.

Maybe Sears has a secret plan to make a comeback.  But I doubt it.  And it is a shame, too, as the retirees will be the ones hurt in this mess, as they find their retirement pensions cut back if the company goes bankrupt.  And bankruptcy could mean a whole lot more empty retail space out there as well, further depressing that market as well.

But with zero investment in the stores, and a CEO who viewed the company as a "hedge fund" it doesn't seem likely there is a secret plan for a bailout.  They are riding the company all the way down, and at the last minute, will jump off, their past salaries and benefits largely intact.

Unlike GM, I don't see this place emerging from bankruptcy "tanned, rested and ready" to start over again.  And I don't think the American people are in the mood for another government-sponsored bailout - nor is Sears/Kmart "too big to fail."

But time will tell.  A economic recovery in 2012 could keep the place afloat another year - just as cheap gas and profitable SUVs kept GM afloat throughout the 1990's.  You never know.  But long-term, it is hard to see Sears growing out of its problems.