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    Sears’ demise calls for change in management, says GlobalData

Following the news that US retailer, Sears, files for bankruptcy:

Neil Saunders, Managing Director of GlobalData Retail, comments:

“Today is a day that will live in retail infamy. That a storied retailer, once at the pinnacle of the industry, should collapse in such a shabby state of disarray is both terrible and scandalous in equal measure. However, it is not surprising because this is a destination that Sears has been headed towards for many years, with virtually no serious attempt having ever been made to change the trajectory.

“In our view there are a multitude of factors that have contributed to Sears’ demise, but foremost among them is management’s failure to understand retail and evolve Sears in a way that would have given the chain a fair chance of survival. Although the present leadership team needs to shoulder much of the responsibility, the missteps arguably go back to the 1980s when Sears became too diversified and lost the deftness that had once made it the world’s largest and most innovative retailer.

“As much as today is a conclusion of sorts, it is not the end of the story. Chapter 11 means that Sears will continue on, at least for the foreseeable future, as it tries to find a solution to its financial woes and attempts to carve out a place for itself in the retail market. Neither of these things will be easy to accomplish. In our view, too much rot has set in at Sears to make it viable business. The brand is now tarnished just as the economics of its model are firmly stacked against its future success.

“That said, trading through the holidays is a reasonable tactic, not least because it will allow Sears to clear down some inventory and ensure that at least some staff can keep their jobs, even if only temporarily. Even so, Sears will still be running up a down escalator. This is all the more so as many consumers will now be nervous about buying bigger ticket items from the retailer for fear that it may not be around to back guarantees or fix problems come the new year. Moreover, our own survey data of where people are intending to shop over the holidays shows that Sears is facing the prospect of another year of sliding customer numbers.

“For rival retailers, today’s decision is probably the best outcome. A full liquidation over the holiday period would have created a lot of price pressure in the market and would likely have diverted some spending from other stores. A partial closure of shops is far less damaging.

“Over the longer term it is still unclear what Sears hopes to accomplish. We believe there is no clear path to success. The group has tried to shrink its way to profitability for years to no avail, so it is hard to see why pursuing the same strategy under the auspice of Chapter 11 would result in a different outcome. Further asset sales may reduce debt, but they would not put the company on a sound financial footing nor would they solve the operating losses the group is racking up.

“Ultimately, Sears needs not just to fix its financial problems. It also needs to repair the deficiencies in terms of retail strategy. In our opinion, only a complete change of management will bring this about.”

ENDS

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