Sears reported Q4 2011 results yesterday, which revealed a shockingly high loss of $2.4 BILLION for the quarter and $3.1 billion for the year. Fourth-quarter and 52-week revenue was reported to be $12.5 and $41.6 billion.
Losses of this magnitude will require major debt-shedding and value-releasing maneuvers:
Sears will sell 11 high-performing stores to mall developers for $270 million. They report that the stores will continue to operate as Sears locations into 2013 with final closing dates to be determined and announced later this year.
Sears also plans to cut inventory by $580 million. And in addition to recent store closings, Sears will close another 24 stores.
Sears will also spin-off Sears Hometown and Outlet businesses and certain hardware stores for $400-500 million. Some news agencies (e.g. Wall Street Journal) have estimated that this will affect more than 1200 such stores.
Sears execs urge for all to look past their short-term losses at their total balance sheet, which shows ample cash and assets. The CEO adds that looking at [short term performance] belies Sears’ investment in the customer experience, and that they are going to win their game.
Several analysts don’t believe bankruptcy is pending, but others stand by their predictions that Sears will continue down its downward spiral.
Sold and spun-off stores will obviously affect many, but we anticipate that there will be many more widespread changes as well. It is difficult to predict what will happen with the Craftsman brand, but we would not be shocked if Sears announced distribution deals with additional non-competing retailers. Nearly two years ago, we predicted that Sears may be spinning-off Craftsman as a separate brand – maybe 2012 is the year this comes true.
Higher-risk product development will likely be halted as well. Just look at what happened to Craftsman’s V4 cordless tools. The V4 lineup was introduced and discontinued in less than two months. Just ahead of Christmas, the prices dropped by 75% in order to clear the failed tools from stores and warehouses. While a drop in the bucket compared to total losses, this certainly didn’t help.
Although Home Depot is not a direct competitor, consider their fourth-quarter results: $16 billion in revenue and $774 million in profit. So that’s 28% more revenue than Sears, and a lot more profit.
Speculation aside, huge losses, especially during the winter holiday shopping season, can not be ignored. Expect major changes.
In my area, there are 4 ‘old Sears buildings’, 1 store closing (along with a Sears ‘operation center’), 1 outlet, 1 service depot, & 2 stores all within about 20 miles of each other.
To be fair, the store is closing because the mall it’s in is closing. One of the other stores has been cut in half to add a Whole foods (which is ok with me, the tool section is about the same size it used to be).
I stopped going to sears when they decreased their variety for odd sizes in clothes & especially shoes. Now that that’s back on the shelves and I can get a decent pair of boots from them again, I kind of wish they would figure their stuff out, pay their people enough to care, spend a few quarters not driving for profit but for a true restructuring, and then, chinese hand tools or not they will be a decent place to shop. If they spin Craftsman off as its own brand/company, then things will not be quite as good as we’re hoping for since a lot of the things we take for granted about Craftsman are branded DieHard. You get a new helper/relative that’s going to work on a project with you, head to Sears and get all the clothes, safety gear, and basic tools they will need, I bet you’ll have 3-4 items minimum that have DieHard on the label. If they separate those two, every single Craftsman cordless tool is now an orphan, for starters.
Craftsman hand tools have seen a decline in warranty assurance for a while now, and the power tools have to be discounted to shelf-clearance prices before I’ll even look at them. I realize that this is a problem related to globalization and offshoring the manufacturing process, but Sears built a reputation on quality and no-questions-asked customer service/warranty coverage… if the perception of brand quality (even if it’s false) falls, customers will buy cheaper products and forget brand loyalty. My 1960’s-era Craftsman cabinet saw was great, but when it was flooded into oblivion in 2005, there wasn’t a Craftsman model available that came close in quality at any price; that fact resulted in a lower perception of the brand as a whole. Home Depot, Lowe’s, and even your typical contractor supply stores don’t have the same dependence on a single brand name nor its reputation.
I have a number of friends who work for Sears at several levels of the organization, and I wish them well. Unfortunately, the decline of the Craftsman brand (I really don’t pay enough attention to the rest of the store to comment) is a result of poor decisions made years, even decades ago, and it’s going to be very difficult to recover from that.
Has anyone noticed that the Craftsman website (and probably the catalog) no longer list the Professional Craftsman cabinet-type table saws. Still have the hybrid, granite-top 22116 model but the right and left tilt professional saws are missing in action.
Big losses at Sears are no surprise… I know I picked up a few tools from them over the holidays, at stupidly-cheap prices. I guess the strategy of taking a loss on each sale and making it up with volume still doesn’t work.
I think you should consider that they most likely made some profit on every item you bought at stupidly-cheap prices.
That’s the strategy that is keeping them only one step behind Lowe’s/HD instead of several steps closer to HF. The power tools are one of the few things that keep them different.
I’m no marketing guru or economic analyst – but Sears certainly seems to have lost its way – continuing this trend for years. In my market they advertise almost exclusively for appliance business with the emphasis that they are the only store to carry all major brands (by this I guess they mean that they carry Kenmore – their house brand). I’m not sure they really compete with Best Buy or the regional appliance stores.
For tools – there are also many more choices than Craftsman (which was about the only tool brand that Sears sold at one time) and Sears carrying other brands has apparently not helped them reverse the Home Depot trend – which also shut down most mom & pop hardware stores. I know of no builders who regularly stop at Sears – whereas many do stop at HD and Lowes – where they can get both tools and building materials – and for some even pick up day laborers who seem to frequent some HD parking lots as if they were a union shape-up location.
It’s almost like they don’t know who they want to be when they grow up. Are they a clothing store, an appliance store, a home-center / tool store or what? The few times I’ve been in a Sears – because someone wanted one of their water heaters – there was not much in the sales going on compared to the floor space. As someone pointed out – they probably need to figure out what their new “knitting” is and then stick to it.
The problem is that Sears is a dinasaur in a modern age. Years ago, sears was a great “one stop shop” for tools, clothes, appliances, televisions, etc. etc. It was a “mall” before there were malls.
Now, in a single shopping complex (shared parking), you can find a Target, Home Depot, (insert funishing store), and discount clothing retailer (TJ Maxx, Marshalls, etc.).
The competion for Sears is 20x more than before (say 1975).
Truth be told, Sears should have recognized internet retail as a key aspect 10-15 years ago, and I believe they would be flourishing. Instead, Amazon, (the internet book retailer) decided it could sell everything you could ever need and quickly stole the market space that Sears could have been great at.
Being the one-stop shop isn’t really an advantage for Sears anymore. They need to figure out what they are good at, and concentrate on that again. My guess is that is tools and appliances, but we shall see.
Here’s the problem though, at least from their perspective. You can justifiably compare them to Best Buy, JC Penny, Lowe’s/HD, Omega Sports, Target, and a handful of other dissimilar stores, each with a notable EXCEPT. They have the ability to compete with each of these stores on similar items in a category by category comparison. The mall comparison is dead on. They could still be similar to a one-stop-shop, their problem is getting you to stop there and shop with them.
They sell clothes, shoes, jewelry, appliances, other non-appliance kitchen stuff, excercise equipment (mostly just machinery unfortunately), sports gear, tools, lawn & garden, beds, furniture, and probably some category I’m forgetting. They are literally trying to have things for ‘every room in the home’ like one of their ads used to say. And the problem with all of that is, no one part of their store is really doing terrible. They don’t have any category or department that they can cut because it’s performing poorly. They as a whole company are.
Personally, I would suggest they probably don’t need to spin off or change their products or any of these things that have been suggested (MSNBC was talking about it several times throughout the day). The problem is their people. The retail people don’t care really. They don’t know enough to care, whether the old ladies in the tools or the unhealthily overweight people in the sporting goods or the obvious non-cooks in the appliances & housewares. Train your people, give them real incentive and familiarity with these items. Hell there is no reason that each one of them should not own a kitchen full of Kenmore & a garage full of Craftsman and so on. They all work for commission, even the management talks about their sales in excited tones when they’re all talking amongst each other (while i’m browsing the reviews on the Sears site on my phone one aisle over).
The people at the top need the people in the middle to get them going in the right direction. From there, the people in the stores will make it a worthwhile place to go to get all of those above mentioned items. I honestly think today’s retail space really requires them to have closed those stores, I think fewer well stocked, well staffed stores that sell their current variety of items is a good step toward them managing themselves into a thriving company again.
I’ve never shopped at sears for anything besides tools. Now that craftsman tools are no longer made in the USA, they’ve taken away my only reason that I’d ever want to shop there.
our store has had no real improvememts in 25 years. its small and crowded and doesn’t carry a complete line. even the tool dept is half the size of other sears stores. no wonder they are having problems.
I had a full set of Craftsman tools (Stanley through Danahe eras) in the 80’s. In the early 90’s I had a broken Craftsman 13mm Deep socket that I carried for 3 years in my car. Every time I stopped at a Sears I tried to get it replaced, and they didn’t have it and wouldn’t break a set. In 1994 my tools were stolen and I bought a complete SK set for thousands of dollars and never looked back. Every family or neighborhood project it was easy to sort my tools out and go home first while the Craftsman owners tried to sort out their tools. Now their hand tools are moving to China. Does anyone shop there anymore? I walk through sometimes but don’t buy anything.