Sears Holdings isn’t wasting any time after recording an average same-store holiday sales dip of 5.2 percent. The company said Tuesday it plans to shut down 100 to 120 Sears and Kmart stores in the coming months.
Sears operates more than 4,000 stores across the United States and Canada, including the Kmart, Sears, and Land’s End brands. Like other retailers that haven’t moved quickly enough to adapt to shifting shopping habits, it has struggled as customers switched to rival department stores or discount stores; it has already shut down a number of stores this year. In particular, company’s statement about its financial expectations for the fourth quarter mention decreases in consumer electronics and apparel purchases, as well as lower layaway sales as the culprit for its disappointing quarter.
“Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce ongoing expenses, adjust our asset base, and accelerate the transformation of our business model,” said Sears Chief Executive Lou D’Ambrosio. “These actions will better enable us to focus our investments on serving our customers and members through integrated retail — at the store, online and in the home.”
Store Closures Not Finalized
Sears Holdings hasn’t announced yet which stores will be closed, but it anticipates raising $140 million to $170 million in cash from the inventory close-outs, in addition to savings from reworked real-estate obligations. The closures will reduce its fixed costs by between $100 million and $200 million.
One apparent strategy shift from the past: While it has traditionally been Sears’ practice to keep stories open while transforming them to new formats, it says it doesn’t have that luxury right now.
“While our past practice has been to keep marginally performing stores open while we worked to improve their performance, we no longer believe that to be the appropriate action in this environment,” the company said. “We intend to accentuate our focus and resources to our better-performing stories with the goal of converting their customer experience into a world-close integrated retail experience.”
In its information about the closures, Sears estimates that its fourth-quarter earnings will be less than half the $933 million it earned a year ago. What’s more, the company also expects a non-cash charge of between $1.6 billion and $2.4 billion related to some deferred tax assets.
What’s in Store for Small Retailers?
There are several things that small retailers can take away from Sears’ action.
If your small business is located near one of the closing locations and it has been relying on foot traffic from those visitors, you need to keep tabs on who will take over that retail space and adapt accordingly. The Sears closure might mean it is also time to move your own location.
If your business is even remotely competitive, you’ll have to grin and bear the inevitable fire-sale price cuts that could threaten to trickle over to your store.
Sears’ struggles offer another vivid example of how U.S. shopping habits are changing, and you might want to take a cue from its plan to better integrate the in-store and online commerce experiences. Far too many retailers still handle those activities very separately, to their disadvantage. It is becoming a big customer service issue, especially when systems do not synchronize properly.
Case in point: The customer service nightmare that Best Buy suffered just before Christmas when it discovered it didn’t have the inventory to fill certain online orders.
There’s another trend signaled by Sears when it talks about the customer experience “in the home.”
It shouldn’t escape your notice that Best Buy this week is completing its buyout of a company that will extend its footprint in providing technology services to businesses and consumers. Sears itself announced a deal earlier this month to install residential electric vehicle charging stations, and it is training personnel accordingly to offer a broader range of in-home installation and maintenance services.
Both retailers clearly believe a deeper footprint in the ability to provide services for the items will be important for the future. That should be another wake-up call for smaller retailers and small services businesses that have been relying on those opportunities.