Tuesday, December 27, 2011

As Predicted Here on TDS: Sears Takes the Next Step in the Downward Spiral

I don't make a lot of specifically timed predictions here on TDS because that's a good way to seriously undermine one's credibility. Instead, I call out trends in the economy as I see them. Back on August 18th, I posted about one such trend using a title that was self-explanatory, "The Drip...Drip...Drip... Begins for Sears," in which I wrote the following:
Unfortunately for Sears, the company is now following the same pattern as the recently defunct Borders...closing down underperforming locations in the wake of declining revenues in a desperate attempt to regain profitability. Any sentient observer should know how this story will play out. Sears will close some stores, then lose more money, then close more stores, then lose more money...continuing along the downward spiral that will eventually lead to bankruptcy and the nationwide going out of business sale.

It's inevitable. A substantial portion of Sears's customer base is either losing their jobs or seeing their pay and benefits reduced. They are also faced with declining home values, meaning that the great home equity ATM has been forever shut off as a source of spending to maintain the illusion of prosperity.

Sears will do what so many other retail chains have done before them, try to hang on until the economy "recovers." At some point, however, the company will come to recognize that the light at the end of the tunnel is in fact an onrushing train.
Well, as reported by Zero Hedge today, the train isn't quite here yet, but it has become obvious that those are headlights in the distance:
That retailer Sears, aka K-Mart, just preannounced what can only be described as catastrophic Q4 results should not be a surprise to anyone: after all we have been warning ever since the "record" thanksgiving holiday that when you literally dump merchandize at stunning losses, losses will, stunningly, follow. Sure enough enter Sears. What we, however, are ourselves stunned by is that as part of its preannouncement, Sears has decided it would be prudent to provide an update on its credit facility status as well as availability. As a reminder to anyone and everyone - there is no more sure way of committing corporate suicide than openly inviting the bear raid which always appears whenever the words "revolving credit facility" and "availability" appear in the same press release. Just recall MF Global. And here, as there, we expect shorting to death to commence in 5...4...3...
Zero Hedge, of course, is interested from a stock market perspective, whereas I am more concerned about store closings and people losing their jobs. From the Sears announcement:
Close 100 to 120 Kmart and Sears Full-line stores. We expect these store closures to generate $140 to $170 million of cash as the net inventory in these stores is sold and we expect to generate additional cash proceeds from the sale or sublease of the related real estate. Further, we intend to optimize the space allocation based on category performance in certain stores. Final determination of the stores to be closed has not yet been made. The list of stores closing will be posted at www.searsmedia.com when final determination is made.
In other words they are now cannibalizing themselves in order to try and stay afloat. Just like I predicted back in August.


  1. What is amazing is our governor in Ohio is trying to lure Sears's headquarters to the middle of the state, and has offered a $400 million tax incentive package for the move of about 6,000 people. Sears has this to consider, along with whatever Illinois offers to keep them, and whatever Texas puts on the table. Our governor is nuts, we don't want Sears to come here, die, and have the carcass in our backyard.

  2. @Anon - you make another very good point. In fact, I have an upcoming post about states competing to screw over each other giving tax incentives to these companies (not Sears, but it does involve Illinois. Surprise, surprise). Meanwhile, the state government finances take an even bigger hit.

  3. Soon all that will be left of Sears-Mart will be the Discover credit card company. Its been their only profitable business for years now.

  4. @Thrivalista - good point. I wonder how long it will be before Discover is spun off from the rest of the sinking ship?

  5. I live a area, that the closest sears is (30) miles,closing now if i have to shop at sears, i will have to travel 65 miles one way, or the largest area being portland OR, 300 miles.

  6. @Anon - that is an important point. Like with the closings of the rural post offices, if anyone is thinking about relocating to the remote countryside in order to ride out the storm, they need to recognize that the modern services we all take for granted are likely to disappear in those areas first. A factor to particularly consider in light of the likelihood that gasoline will become prohibitively expensive in the coming years.