Disruption in the retail sector is putting the future of US department stores like Sears and Macy’s in jeopardy, as online and discount retailers thrive.
Following a disappointing 2016 holiday season, Sears announced plans to close 150 stores and sell its nearly century-old Craftsman tool brand to Stanley Black & Decker in a deal valued at about $900 million. The beleaguered company’s sales have fallen by half since 2007.
Edward S. Lampert, Chairman and Chief Executive of Sears, “has struggled for years to find ways to help the company, as much through esoteric financial manoeuvres as through operational fixes”, the New York Times reports. Capital raising and asset sales in 2015 and 2016 added more than $5 billion to Sears’s balance sheet, but have not been sufficient to counter its declining sales.
Under Lampert, who is also a hedge fund manager, Sears has lagged behind its competitors in sales. There has long been speculation that the company will eventually have to file for bankruptcy.
But for the moment, the 130-year-old retailer continues to fight. In addition to the Craftsman sale and store closures, Sears plans to raise up to $1 billion through loans. This will include a $500 million loan backed by its real estate and a loan from Lampert’s hedge fund. “We are taking strong, decisive actions today to stabilise the company and improve our financial flexibility in what remains a challenging retail environment”, Lampert said.
In spring of last year, Sears hired the banks Citigroup and LionTree to advise the company on selling some of its well-known brands, including Craftsman, DieHard and Kenmore, in order to raise capital.
Upheaval in the US retail sector has been taking a toll on many once-mighty players. The announcement from Sears came just days after Macy’s, the country's largest department store chain, announced plans to close 100 stores and slash over 10,000 jobs. Over the past two years similar announcements have come from others in the space, including J.C. Penney. These changes are “happening at a tremendous speed”, notes Bernard Sosnick, a retail analyst with Madison Global Partners.
“Brick-and-mortar is not necessarily dead, but you need fewer stores to achieve the same amount of sales volume”, said Liz Dunn, Chief Executive of retail consulting firm Talmage Advisors. “A lot of retailers need to shrink their store base, and that is tied to everything that’s happened with digital and changing shopping patterns.”