Sears Will Not Close Enough Stores

The numbers do not add up. Sears Holdings (NASDAQ: SHLD) has over 4,000 full-line and specialty stores. Same-store sales for the eight weeks that ended December 25 were down 5.2%. That figure represents a sharp acceleration of negative numbers from the earlier part of 2011. But, Sears Holdings only plans to close 100 to 120 Kmart and Sears full-line stores.

Sears is in such great enough trouble that shuttering 3% of locations barely dents the problem. The Kmart and Sears store networks must have a larger portion of their outlets that underperform enough not to be profitable, or are only marginally so.

Sears also must deal with the fact that its online business is not strong enough to allow it to compete with e-commerce sites that draw much more traffic, particularly Target (NYSE: TGT), Walmart (NYSE: WMT) and, of course, Amazon.com (NASDAQ: AMZN).

Sears needs to show Wall St. that it takes its severe trouble more seriously. Its stock is down 20% on the poor sales news to a 52-week low of $36.31. The best recent example of a larger retailers that dealt with same-store sales problems was the Gap (NYSE: GPS), which said it will close 21% of its U.S. Gap flagship outlets. Sears would have to cut 800 locations to make a comparable downsizing. Sears and Gap do not have identical problems. Sears is a broad-product-line store chain. Gap is a specialty retail one. But extremely poor same-store sales are a mark of a retailer that has maintained a financially unsustainable network.

Sears’ problems are not new. If they were, management could make the argument that it might turn the retailer around with only modest store cuts. But Sears is now struggling to stay a viable company. A 3% cut in locations is not nearly enough.

Douglas A. McIntyre