While many retailers remain on pins and needles about how their holiday
receipts will stack up, there's no mystery at Sears Holdings (NASDAQ: SHLD ).
The company that operates Sears and Kmart department stores has been losing
customers and bleeding red ink forever and the past few months were no
exception. So Sears wasted no time announcing a huge cutback on its store count.
Between 100 and 120 Sears and Kmart stores will be closed. The company says $140
million to $170 million will be made as the inventory is shuffled out at
fire-sale prices. But more disturbing isn't the store closures it's the
context. Sears is losing money, and no profits are expected anytime soon. It
makes you wonder if this really is just the beginning of the end for the
once-iconic department store. How bad is it? Well, consumers should know
first-hand just by visiting their local Kmart or Sears locations. Fallen
flagship brands like Craftsman tools and Kenmore appliances used to be quality
names for many Americans but have little currency with shoppers today. Even more
damning is the tarnish on the stores themselves aging stores ideally could use
a fresh design and at the least need a good cleaning and repair job. Hedge fund
manager Edward Lampert and his cronies merged Sears with Kmart in 2005. Lampert
began focusing on online boondoggles such as an online marketplace in the vein
of eBay (NASDAQ: EBAY ) rather than acknowledging the power of its legacy brands
at physical stores. You can't fault the logic, since online retail is crushing
brick-and-mortar sales . But the result is online efforts have failed to bear
fruit yet, and existing stores present customers with a rather disappointing
experience. It's a lose-lose situation that has cost Sears dearly. That's
just from a taste perspective, however. The harshest reality for the company is
the poor sales numbers that have plagued Sears and Kmart for some time. Sears
Holdings has lost money in five of the past six quarters. Even worse: November
marked a stunning 19 straight quarters of sales declines ! The icing on the cake
is that Wall Street estimates for the company project consecutive quarterly
losses in each period through all of fiscal 2013. That means if you're being
charitable, Sears will continue to lose money for another year-and-a-half. But
let's be honest the reality is that forecasters aren't looking past 2013
because that's too far down the road. There's a very good chance that a year
from now, the outlook might be just as grim. Sears has yet to determine which
stores will be closed, or how many jobs will be lost. Management is casting the
store closures as an unfortunate event prompted by a bad economy and that is
indeed partly true. Many big retailers like Wal-Mart (NYSE: WMT ) have struggled
to find their way as consumers have cut back and are more savvy about getting
the best deals. It might sound counterintuitive that the king of low-priced
retail would be hurting, but Wal-Mart has suffered for a few years now as
smaller discounters like Dollar General (NYSE: DG ) connect with customers and
sometimes even undercut pricing at the big guys. It is indeed challenging for
retailers. But Sears is in a class of its own when it comes to losing customers
and losing money in the retail space. And it's worth noting that some
retailers are booming . Sales at the company have dropped every single year
since Lampert took over in 2005. No wonder shares are off almost 50%
year-to-date in 2011 and almost 70% from the 2010 peak of SHLD stock. To be
clear, bankruptcy might not be an immediate concern. Sears doesn't have the
crippling debt load that drives companies directly into bankruptcy. But it's
certainly on its way. Unless Sears can streamline its operations and find a good
way to use funds from this inventory liquidation, it's likely we will see only
more store closures in the future and a race to the bottom for this once-storied
retail brand. Not everyone is bearish on Sears. Jonathan Berr thinks a new focus
on licensing deals such as a Sears partnership with the Kardashians can help
the company. But it's going to take more than star power to right this sinking
ship. Jeff Reeves is the editor of InvestorPlace.com. Write him at
editor@investorplace.com , follow him on Twitter via @JeffReevesIP and
become a fan of InvestorPlace on Facebook . Jeff Reeves holds a position in
Alcoa, but no other publicly traded stocks.
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