How Much Time Does Sears Have Left?

The iconic retailer may be running on fumes.

In 1969, Sears comfortably sat atop the worlds of business and retail. It sales topped $12 billion and the company claimed 350,000 employees. As a simple of that clout, Sears embarked on the construction of a skyscraper in Chicago, named the Sears Tower, that was for a time the largest building in the world.

It’s perhaps merely symbolic that the Tower is now named Willis Tower, but Sears’ fortunes have been sliding for decades. It once owned not only the largest retailer, but an enormous financial services organization that included All State Insurance, the Dean Witter brokerage, and the Discover card. It’s brands were also eponymous: Craftsman, Die Hard, and Kenmore.

No department store operator has escaped the recent carnage in retail. Macy’s issued a weak sales report last week calling it’s future growth into question. But, no other major retailer appears in as much danger as Sears, which issued a “going concern” warning in its latest earnings report, raising questions about its long-term viability.

The modern incarnation of Sears came about it in 2005 when hedge fund luminary Eddie Lampert merged Sears with KMart, a retailer Lampert had acquired a substantial amount of debt in while it was in bankruptcy and ended up becoming a majority owner when it emerged. When the merger took place, Sears was valued at $11 billion. Hopes ran high that Lampert’s hedge fund background would create significant value after the merger through financial engineering and investing proceeds from real estate sales. Little, if any, of that value accrued to shareholders. Part of the reason is that while Lampert was a shrewd investor, he was never a very good operator.

At the conclusion of their first year as one company – 2006 – KMart operated 1,388 stores and had sales of $18.6 billion while Sears operated 935 broadline stores in the United States and had sales of $29.2 billion. In the most recent year – 2016 – KMart’s store count had shrunk to 735 and its sales to $8.7 billion . Sears’ number of broadline stores was only 670 and its sales were $13.5 billion.

Lampert has tried to juice returns with the standard hedge fund playbook. He has spun out Lands End as a separate company as well as creating a company from the retailers former real estate assets. But, Sears has not been able to overcome its irrelevancy in the broader retail landscape, something no financial engineering can paper over. 2016 was the sixth year in a row it has lost money and is now borrowing money from Lampert’s hedge fund to stay afloat.

Retailers on the ropes can set off a “run on the bank” mentality as suppliers grow more hesitant to do business for fear monies they are owed will never get repaid. A recent spat between Sears and One World Technologies, the company that bought the Craftsman brand from Sears, highlighted this threat. One World attempted to change the terms of its agreement with Sears, causing Lampert and the company to balk. Lampert, though, noted that One World was not the only company that had begun to see Sears a “pariah.”

Sears may be a victim of changing consumer tastes and will endure a death that was accelerated by the collapse in the housing market a decade ago. But, it also serves as a stark lesson for business leaders that do not check their hubris.

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