Published on January 24, 2014

Another Sears store closing: triage or death rattle?

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Business

(Crain News Service photo)
Sears plans to close its store at 2 N. State Street in Chicago in early April.

By Brigid Sweeney, Crain News Service

CHICAGO (Jan. 24, 2014) — Sears Holding Corp.'s future — if it has one — is not in urban retailing.

By announcing plans to close its flagship Loop store on State Street in Chicago, Sears confirmed what most downtown Chicago denizens have known for a while: The retailer's remaining merchandise strengths—tools, household appliances and consumer electronics—do not sell in a vertical store surrounded mostly by office workers.

The closing, scheduled for early April, will put roughly 160 employees out of work and leave Sears with just two locations in Chicago. The company, which also owns Kmart Corp., has five of those discount stores within the city, too.

Though rival Target Corp. has adapted to urban markets—it opened 124,000-sq.-ft. store kitty-corner from Sears on State Street in mid-2012 and now boasts a dozen stores within the city limits—Sears said its downtown site never lived up to expectations.

The three-story store "has lost millions of dollars since opening" in 2001, according to a spokesman.

The company also has aggressively closed struggling locations since 2011 and displayed a willingness to sell even high-performing stores if the price is right, or shut down entire side brands such as its Hometown line.

That empty feeling

Viewed on a broader level, the next Sears store closure is simply the latest incarnation of what the retailer has done since the 19th century: follow its customers, first from rural America into urban cores, then to suburbia, then back downtown—and finally, now, out of bricks-and-mortar entirely to the Internet.

The Hoffman Estates, Ill.-based retailer closed its original State Street location in 1983 after 51 years on one of America's legendary main streets. Like most department stores of the era, Sears migrated with its customers to the suburbs as urban centers around the country grappled with population and economic losses.

Fellow retailers Montgomery Ward, Weiboldt's, Goldblatts and Carson Pirie Scott all shut their doors on State Street within a few years of one another, turning State Street into an unwanted address for most retailers.

But nearly two decades later, as the Loop began to fill with college students and empty-nesters, Sears returned. The move was a gamble: Even at the time of the reopening, retail experts questioned whether Loop workers would pop into Sears for Diehard batteries, Craftsman tools or Kenmore appliances, for which the retailer has been known.

They also wondered whether Sears, which had long struggled to capture that "softer side" success, could successfully appeal to Loop shoppers interested in clothing and shoes, even with its prominent displays of Lands' End apparel at the flagship's front door.

"Apparel and (sales) events are what will get people to spend part of their lunch hour shopping," Daniel Skoda, a former head of Marshall Field's, told Crain's at the time. Lawnmowers and televisions were never part of that equation.

As the years passed, the location became even more disconnected. Not only were Sears shoppers not browsing for hardware in the Loop; increasingly they were bypassing Sears stores altogether to shop elsewhere or online.

Culling the herd

Sears Chairman and CEO Edward Lampert has been a vocal prophet of e-commerce for several years. In a recent blog—posted shortly before Crain's Chicago Business broke the news of the Sears State Street store closure—he wrote that ramping up online efforts while simultaneously winnowing physical locations is necessary in a changing world where shoppers just don't go to stores as often as they used to.

"We launched a major transformation of Sears and Kmart years ago because we saw then that people had fundamentally and permanently changed how they shop as a result of the Internet, social networking and mobile devices," Mr. Lampert wrote. "Those changes have only intensified in recent years."

(Tire Business photo by Sigmund J. Mikolajczyk)
Sears has said it is considering divesting its Sears Auto Center businesses as part of a strategy to improve the company's financial flexibility "and accelerate our transformation into a leading 'integrated retailer.'"

He went on to claim that Sears was "among the first to pioneer" an integrated retail strategy with options that knit together e-commerce and the in-store experience. Dating back to at least 2011, Mr. Lampert publicly has said Sears' "Shop Your Way" platform—a loyalty program with a social media component that works across online, mobile and physical store locations—is the company's future.

If Shop Your Way and Sears' other online initiatives were materially improving the retailer's results, the closure of the outdated State Street store would be viewed as a symbolic step toward a clear and bright future.

No revival

The problem is that so far, the new strategy hasn't turned anything around.

Shop Your Way has attracted a lot of skepticism from analysts and has failed to stanch Sears' losses or improve its plunging same-store sales. Less than two weeks ago, the company announced terrible holiday results and warned its full-year loss may be as high as $1.4 billion, worse than its $930 million loss a year ago. Its shares, which closed Jan. 21 at $37.85, have lost nearly half their value since their 52-week peak of $67.50 in late November.

Considering those numbers, the closure of the State Street store sounds more like a death rattle.

To be sure, the company still has 2,000 Sears and Kmart locations left. But as the retailer auctions off more assets and loses market share to stronger retailers, "the hope of this disaster turning around becomes remote," Gary Balter, an analyst in New York with Credit Suisse, wrote in a recent note.

"One wonders how long this story will go on."

This report appeared in Crain's Chicago Business magazine, a Chicago-based sister publication of Tire Business.

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