In more ways than one, it’s all about the money for Sears Holdings Corp.
This story first appeared in the December 16, 2014 issue of WWD. Subscribe Today.
“Given changing circumstances, both in the retail industry and in our company, we can no longer afford, nor justify, keeping these stores open.”
That’s the candid disclosure for closing more than 200 Kmart and Sears stores this year, according to a blog post by Sears’ chairman and chief executive officer, Edward S. Lampert.
Critics are likely to point out that some of those sites should have been closed sooner, and Lampert addresses that point, too.
He said most of the stores being shuttered “were losing money, some for a long time.” While the “decision to keep some of our worst-performing stores open in the past, despite their low or negative levels of profit, was the right one because we kept people employed,” continuing to do so didn’t make sense against Lampert’s goal of wanting to “operate our stores both profitably and with excellence.”
Monday’s blog, signed Eddie Lampert, said the company will begin 2015 with 1,700 Sears and Kmart big-box stores in operation, still representing about 200 million square feet of space.
The ceo explained that with consumers shopping on multiple platforms, adapting for the future has been a major focus for the company. Further, the “number and size of our stores matter a lot as well,” Lampert wrote.
He asked rhetorically on his blog: “How much retail floor space do we need to deliver great experiences that meet or exceed our members’ expectations? Are our locations where they need to be? With more and more of our sales and member engagement happening online or via mobile and shipping straight to home, do we need the same kinds of stock rooms and warehouses?”
Apparently not anymore. Lampert wrote that “some of our stores are simply too large for our needs, given that populations shift, new roads are built and new retail areas open constantly. Restoring them to profitability has been a challenge.”
While Lampert said he expects most of the company’s stores to stay open for the “foreseeable future,” he noted that in some locations, mall owners and developers have approached Sears on the idea of repositioning its stores for other uses and indicated a willingness to compensate the company for that repositioning privilege.
“When they’ve offered us more money to take over a location than our store there could earn over many, many years, we’ve accepted offers,” Lampert said, adding that the funds were redeployed into investing in the company’s “transformation.” Other options include operating a smaller footprint and leasing out the space to other retailers that can “drive traffic and who compensate us for that space.”
Back to the money proposition: Lampert noted that closing nonproductive stores reduced future losses as well as capital needs, stating that it gives Sears a path to restore profitability sooner for the company.
While Lampert’s view of tomorrow for Sears could eventually pan out, there’s still the question of cash flow over holiday and the retailer’s cash-burn rate, both of which have been a nagging question for the few analysts who still follow the retailer.
He correctly noted that the firm’s real estate portfolio allows it a measure of flexibility, but he also seemed to be drawing a parallel between Sears’ turnaround and that of cities and communities wondering how to convert “windowless buildings that once held essential — now useless — telephone equipment” to make landlines work. They have the same conclusion: “None of these transformations are simple.”