Can Sears Avoid Layoffs? (UPDATED)

Macy’s Inc. (NYSE: M) posted horrible holiday results, and management said it would cut over 4,000 people when store employees and management are added together. The retailer forecast the cuts would save it $400 million a year. The reason was a drop of comparable store sales of 5.2% for November and December combined. It is unlikely that Sears Holdings Corp. (NASDAQ: SHLD) units Kmart and Sears did much better. If their sales eroded at a rate anywhere closed to Macy’s, they cannot afford to keep current employee and store levels.

Sears and Kmart sales continue to fall. Their parent company disclosed when reporting its third-quarter earnings that Kmart sales had dropped 7.5% and Sears by 9.6% year over year. Kmart has 979 stores and Sears Domestic 717.

J.C. Penney Co. Inc. (NYSE: JCP) has done much better, but with just over 1,000 stores it remains small compared to large big-box retailers. It also continues to face relentless competition from Amazon.com Inc. (NASDAQ: AMZN). Yet its same-store sales rose 6.4% in the third quarter. Management anticipated an increase of 4% to 5% in the fourth quarter and announced Thursday that comparable store sales for the combined nine-week November and December period resulted in a 3.9% increase over the same period last year.

It stands to reason that those retailers that are barely making money, or are losing it, have some locations that consistently operate with losses. Managements at embattled retailers need to decide if they can continue to carry those stores. The companies face the costs of layoffs and ongoing rent for some shuttered locations. However, it may be necessary to suffer these financial effects as part of the sole way to cut loses.
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Amazon took a huge portion of e-commerce revenue in the fourth quarter, which means brick-and-mortar stores suffered. Online sales have been described as the primary chance for retailers to offset sales erosion in stores. There is no evidence that has happened.

The medium-sized department store companies almost certainly had poor fourth quarters. Those include Kmart, Sears. Most likely, none of them can afford to keep store counts at current levels.

UPDATE: Note that an earlier version of this story suggested that J.C. Penney would be in the same boat as Sears and Kmart, but J.C. Penney has since posted strong sales numbers for the holiday period.