Can Sears Sales Overcome Its Old Stores Problem?

Retail

Published: May 24, 2013 6:30 am

Earnings from Sears Holdings Corp. (NASDAQ: SHLD) were so awful that Wall Street pushed its stock price down close to 10%. The question is whether the company can overcome the lack of attraction created largely because of its aged stores. Probably not.

Sears Holding’s revenue fell to $8.5 billion for the quarter that ended May 4, 2013, as compared to revenue of $9.3 billion for the comparable quarter a year ago. Same-store sales in the United States dropped 3.6%. This drop was made up of a fall of 4.6% at Kmart and 2.4% at Sears Domestic. The company lost $279 million, compared to a profit of $189 million a year ago.

Hedge fund manager Eddie Lampert, Sears Holdings’ chairman and chief executive officer, promised the company will try to better “communicate” with its customers and use technology to better match inventory with customer demand. Those will not matter much if potential customers do visit its stores.

A year ago, AP reported a comment about Sears from a retail expert. It mirrors what many analysts have said about the company, which is also the anxiety of many investors:

“The image is atrocious. The stores are old and they’re run down. They don’t look like a nice place to visit,” Ron Friedman, a partner in the retail and consumer products industry group of accounting firm Marcum, LLP said. “I don’t think that the Sears we see today can be around from a year today. It has to change.”

Companies that have significant profits, access to capital and strong balance sheets have continued to upgrade stores. This includes Wal-Mart Stores Inc. (NYSE: WMT), Target Corp. (NYSE: TGT) and Macy’s Inc. (NYSE: M). These companies assume that modern stores are as likely as not to attract shoppers. If their financial results are an indication, this assumption may be right.

Lampert indicated in the comments he made about the most recent quarter that Sears needs to raise more money. That means it is unlikely the company has the capital to make a companywide upgrade of its locations. But without such a transformation, “old and run-down” stores will bedevil the chance for a turnaround.

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