Friday, February 24, 2012

Is the End of Sears near?

Sears Holdings, which said it could run low on cash this year, just announced it plans to sell stores in transactions that the company hopes will raise nearly $800 million.

When Kmart bought Sears in late 2004, I thought it to be strange bedfellows.  It is as strange and full of bravado as it would be if Walmart announced today that it bought Macy’s (if only Macy’s sold tools and washing machines). 

At the time, pundits said it was a match as sweet and savory as putting chocolate and peanut butter together. The reality, it was more like putting Republicans and Democrats on the same side of a flag football game played on a muddy field.

The truth is, Kmart shoppers were (and still are) not the same people as Sears shoppers.  The attempt at merging customers and cultures backfired.  The question is if the experiment will somehow survive, or follow the path of a long string of once mighty retail powerhouses (does anyone remember Montgomery Ward?).

But the deals also highlight the major challenges that Sears faces as it tries to stop a multiyear slump in its operations
. Lipstick on a pig, some retail experts around here are saying.

G
iving up its most profitable stores in exchange for a quick cash infusion today, and expecting current shareholders to foot the bill could potentially leaving them more exposed than ever.

"As a matter of fact, spinoffs like these could leave Sears with a very unprofitable core Sears U.S. business," said Mary Ross Gilbert, an analyst with Imperial Capital, a brokerage firm in today’s New York Times.

Sears’ largest investor and chairman, Edward S. Lampert, is increasing his personal stake in the company. Mr. Lampert was behind the $11 billion merger of Kmart and Sears, Roebuck, in late 2004.  His hedge funds now own 61 percent of the stock.   Good luck Mr. Lampert. 

Disclosure: No one in the office is fessing up to owning stock in Sears. However most of us have at least some Craftsman tools and an assortment of Kenmore products sprinkled around their homes.

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