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The Chickens Have Finally Come Home To Roost At Sears

Reggie Middleton's picture





 

 

In January of 2009 (nearly three years ago, which is ironic), I went bearish on Sears due to a variety of reasons, the least of which was less than competent management (hedge fund managers don't necessarily make good department store managers), macro conditions and fundamentals sloped towards hell. Although this was initially a very profitable trade, the rip roaring bear market rally of 2009 shredded the short profits - turning them into losses if uncovered, and simutaneously disguised the many issues that we brought up in our initiail short analysis. Well, you can run but you can't hide, and the truth will ultimately rear its head. On that note...

CNBC Reports In the Wake of Poor Sales, Sears to Close Stores 

Sears Holdings plans to close between 100 and 120 Sears and Kmart stores after poor sales during the holidays, the most crucial time of year for retailers.

In an internal memo Tuesday to employees, CEO and President Lou D'Ambrosio said that the retailer had not "generated the results we were seeking during the holiday."The closings are the latest and most visible in a long series of moves to try to fix a retailer that has struggled with falling sales and shabby stores.

Sears Holdings Corp. said it has yet to determine which stores will close but said it will post on the list online when it's compiled. Sears would not discuss how many, if any, jobs would be cut.

The news sent shares of Sears [SHLD  36.50    -9.35  (-20.39%)   ] to their lowest point in more than three years, and it was posting the biggest percentage decline in the S&P 500 Index.

As does Bloomberg: Sears Plunges on Plans to Close as Many as 120 Stores

Sears Holdings Corp., the retailer controlled by hedge-fund manager Edward Lampert, tumbled the most in... Sears fell (SHLD) 18 percent to $37.65 at 9: 42 a.m. in New York,...

As shoppers may realize, the retail store is at a disadvantage this year for sales activity has simply been weak. Thus,  U.S. Stores Ramp Up Bargains as Sales Lag. I discussed the effects of this on retail malls last week in The Greatest Risk To Retail Commercial Real Estate Is? Sovereign Debt! Macro Headwinds! Popping Bubbles! Busted Banks! No, It's The Internet! The kicker is the effect on Sears will be most exaggerated since it has real estate, fundamental, macro, industry induced and management issues to deal with as well as the paradigm shift towards internet shopping (which it should have been able to hedge with Sears.com and Kmart.com, alas this brings us back to the management issues, doesn't it?. BoomBustBlog subscribers, please refresh your memories by downloading the following...

Sears Holdings Research Report - Retail Sears Holdings Research Report - Retail 2009-01-27 01:13:07 50.42 Kb

Sears Holdings Research Report - Pro Sears Holdings Research Report - Pro 2009-01-27 01:11:41 313.25 Kb

 Those who don't subscriber can view the 4 page preview below.

 

 

 

 


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Wed, 12/28/2011 - 12:05 | Link to Comment Lore
Lore's picture

Sad to see Sears in dire straits. In Canada they seem to emulate the ingenius merchandising formula of the Bay and Zellers: dump bins of old, substandard crap in the middle of the aisle, covered with dust, with phony "Sale" prices. Most staff are knowledgeable and try hard, but there's only so much you can do when the good products are gone and all that's left is substandard in-house-labels that look like they came from a third world dumpster. And what's with the thousands of tacky brassieres displayed at store entrances?

In fairness, as someone pointed out, they're merely following their primary market - the middle class - into oblivion. But some of us had money to spend and didn't because there was nothing worth buying.

A lot of places are getting ready to close their doors, especially in specialty retail. Watch the mom 'n pop gift shops dry up and blow away.

Wed, 12/28/2011 - 10:22 | Link to Comment orangedrinkandchips
orangedrinkandchips's picture

I know I sound not only old but wierd when I mention this but....

 

TIMMMMMM....ber!

 

Droopy the dog cartoon....one episode is where the other dog is trying to kill droopy but droopy cant be killed since it's a cartoon. Anyway, the other dog tries to cut down a tree to fall on droopy and he cuts it down, then stands up straight acting all innocent like he's just hanging out....

 

The other dog starts to yell TIMBER but the tree falls on him (per usual). The funniest part of it is the sound...he starts off TIMMMMM... then in a nasal tone BER as he is under the tree...funny as hell....

 

"DONT NEED A WEATHERMAN TO KNOW WHICH WAY THE WIND BLOWS...."

 

Shit was as obvious as the tides!

Wed, 12/28/2011 - 04:21 | Link to Comment steelrules
steelrules's picture

Sears and Kmart are usually anchor stores in large malls, at least in my town the are.

I would guess that between the Sears furniture store and the Sears they have 200,000 sf, my point in all of this is our local mall just got a 50,000 sf Best Buy but may just lose 200,000 sf. of Sears.

In closing, the DEPRESSION deepens and commercial realestate is probably not a good investment, not yet anyway. 

Wed, 12/28/2011 - 10:34 | Link to Comment Chief KnocAHoma
Chief KnocAHoma's picture

It is called EVOLUTION - Adapt or die - most of us have to adhere to this law of nature. Online shopping is so big now most standard retailers will feel the same pinch. I only go to stores for something i can not buy on line. Tires, booze, hookers ....etc.

Only those that the Fed deems to be above this law like, bankers and welfare moms, are exempt.

Wed, 12/28/2011 - 02:51 | Link to Comment hivekiller
hivekiller's picture

Cliches I'm tired of hearing:

 

chickens have come home to roost, bringing my A game, think outside of the box, edgy,

Wed, 12/28/2011 - 09:47 | Link to Comment Willzyx
Willzyx's picture

Doing god's work

Wed, 12/28/2011 - 09:05 | Link to Comment williambanzai7
williambanzai7's picture

Attention K Mart Shoppers...

Wed, 12/28/2011 - 03:11 | Link to Comment Outlaw Of The W...
Outlaw Of The Wasteland's picture

dipping a toe in the water, nibbling

Wed, 12/28/2011 - 02:48 | Link to Comment QQQBall
QQQBall's picture

Sears went downhill when the quality of their Kenmore appliance line went "chinese". Maybe someone thought they made more on selling extended warranties, so the a lesser quality appliance at appx the same price or slightly lower would almost require a consumer to buy an extended warranty.

Due to repair costs, washer/dryers are almost disposable.  Really stpid too, b/c when CC went dark, it came down to Best Buy or Sears, but the weak quality allowed Lowes and HD to start selling appliances. They f00ked away generations worth of customer loyalty.

Wed, 12/28/2011 - 04:06 | Link to Comment HungrySeagull
HungrySeagull's picture

I used to haul the sheet steel in coil form to those places in Kentrucky that made the washers and dryers. I don't recall much now but back then, those coils turned into applinaces by the dozen with a workforce intent on quitting to go home on time with a 6 pack under each hand.

 

I have a Korean washing machine doing that work now quietly. I suppose if they learn to branch out and build the stuff here in the USA before they get vaporized by a child with rattle in North Korea they will continue to sell well.

 

The old ones were disposible.

 

It was crazy to see the old style machines selling for close to twice what the new energy star machines were selling for these days.

Wed, 12/28/2011 - 02:09 | Link to Comment Outlaw Of The W...
Outlaw Of The Wasteland's picture

edward lampert.

 

Yet another "successful" "jewish" businessman.

 

This race cult masquerading as a religion from the sewers of odessa and krakow are very real disasters.

 

They are poison.

Wed, 12/28/2011 - 09:36 | Link to Comment LasVegasDave
LasVegasDave's picture

So what if they are Khazarian Turks.

They still got you beat, chump.

 

Wed, 12/28/2011 - 08:31 | Link to Comment Raskolnikoff
Raskolnikoff's picture

I agree, not a religion at all. LOL, people love to hunt in packs and I no longer care what the packs decide to calll themselves.

Wed, 12/28/2011 - 01:25 | Link to Comment AndrewCostello
AndrewCostello's picture

Stores that cater to the middle class are dying the same death that their customers are.  The 21st Century will see a return to the natural order of things, where there is a super rich class, and the rest of the world are poor.  Stores will have to cater to one or the other.

 

Read:

http://www.amazon.com/Simple-Wealth-Mr-Andrew-Costello/dp/1463523017/ref

Thu, 12/29/2011 - 09:35 | Link to Comment fajensen
fajensen's picture

In Århus, DK, There is now an "exclusive" Levis-only shop. Most of the other clothes-pushers in the area have (suddently?) stopped selling Levis or no longer have the full range.

The funny thing is that prices on Levis trousers have dropped - also in the "exclusive" shoppe. Ah Well. Maybe them super rich folks are not shopping so much either.

Wed, 12/28/2011 - 02:43 | Link to Comment Freddie
Freddie's picture

Damn I wish I had shorted this POS a few year ago.  I always thought Eddie Lamprey was just another hedgie con artists and asset stripper.

Anyone remember when two homies kidnapped em a few years ago and I think he convinced them he was not rich or something.  He obviously was released or they got caught.  

Wed, 12/28/2011 - 00:03 | Link to Comment besnook
besnook's picture

sorry reggie, SHLD is the big zit on your nose in 11th grade.  i made a ton of money on lampert's stupidity.

 

i wish someone would beat the crap out of lampert for abusing the fine lady and restore her elegance as the symbol of the american dream in the form of a great quality appliance, tool, lawn mower, clothes and auto center. in many ways the whole saga is a metaphor for the late great usa.

 

 

Tue, 12/27/2011 - 23:53 | Link to Comment DriveByLurker
DriveByLurker's picture

Kmart?  C'mon people, didn't you know that Kmart wasn't really a retail establishment?  That was just a front.  Their real purpose was to perform a series of long term experiments about the effects of bad fluorescent lighting on cheap Chinese thermoplastics.

 

You actually still thought Kmart had something to do with retail?!!?  {eyeroll}   

Tue, 12/27/2011 - 23:33 | Link to Comment mendolover
mendolover's picture

If remember when I got my Sears Card.  That thing was harder to get than a Master Card.  Middle eighties.  Another world.

Wed, 12/28/2011 - 04:02 | Link to Comment HungrySeagull
HungrySeagull's picture

You forgot the Gas Cards.

If you owned all the Gas chain credit cards for the entire country, you could literally be long gone before the old statements rolled in the mail.

Tue, 12/27/2011 - 21:44 | Link to Comment sabra1
sabra1's picture

sears started going downhill when they stopped selling craftsman homes! still waiting for my front door, 60 years later!

Wed, 12/28/2011 - 08:05 | Link to Comment floridasandy
floridasandy's picture

my dad never bought anything for himself, but he always wanted craftsman tools for christmas.

he liked building things himself and that you could exchange them if they ever broke, and sears was pretty good about honoring that policy.

my dad is no longer here, but he would be very sorry to see what has happened to sears.

it does symbolize what is happening to america, in general.

Tue, 12/27/2011 - 21:43 | Link to Comment bill1102inf
bill1102inf's picture

Good-Bye Bitchezz

Tue, 12/27/2011 - 21:41 | Link to Comment Dingleberry
Dingleberry's picture

Kmart delcared bankruptcy and then bought Sears (or vice versa) like a year or so later. Wiped out a lot of folks. Caused lots of pain. WHo the fuck shops there anymore? You wanna take a bath after going into one of those shitholes......Walmart is no better, but their aisles are wider. Probably reminds customers of their double-wides........

Wed, 12/28/2011 - 01:52 | Link to Comment logically possible
logically possible's picture

Dingle, I haven't forgot. I took a hit on Kmart when the stock went to zero. But the Kmart holdings sure did well, (I believe this was the real estate side) When they bought Sears, my first thought was, where did Kmart get that kind of money? I'm sure that wasn't planned all along. I haven't been in a Kmart or a Sears since. 

Tue, 12/27/2011 - 20:50 | Link to Comment jomama
jomama's picture

i'll take the Long, Drawn Out, Excrutiating Existence for $200, Alex.

Tue, 12/27/2011 - 20:19 | Link to Comment mailll
mailll's picture

In the past 3 years I bought a refrigerator, freezer, and stove from sears.  I like the store.  Hopefully they don't end up like Montgomery wards did.  I don't think they have a retail store anywhere now.  But in my area there is a Sears, and right across the street, a Kmart.  In my opinion they should combine the stores into one.  Maybe call it searsmart or something. 

Wed, 12/28/2011 - 04:00 | Link to Comment HungrySeagull
HungrySeagull's picture

We got ours from Best buy (Heh, they had a hell of a sale one october, beating out Sears, lowes and everyone else.)

 

We bought everything cash and on the spot, had it all delivered.

The resulting drop in electric bills have already more than paid off the total cost of the new appliances.

 

It was also a convulted sale because the 4 girls who were working the register and helping to close all the stuff kept upselling and we kept saying no. Cash only as is out the door on your truck as it goes.

They tried to upsell. If we said yes as some people would in moments of giddy emotion they would have been sheared as a sheep should be.

 

Just say no.

Wed, 12/28/2011 - 03:12 | Link to Comment StychoKiller
Wed, 12/28/2011 - 11:46 | Link to Comment Dooud
Dooud's picture

Come get some.....

Tue, 12/27/2011 - 20:12 | Link to Comment virgilcaine
virgilcaine's picture

I have a Ted Williams model air gun from the 1970's in nice condition.  Sears was a solid store when I was a kid.  Think in terms of the Sears tower, when you start building skyscrapers its all down hill from there. I didnt have alot but what I did I took care of.

Tue, 12/27/2011 - 20:08 | Link to Comment Savonarola
Savonarola's picture

When I was a kid, the monthly trip to Sears Roebuck was a trip to a wonderland. Dad and I would spend an hour in the tools and machinery - just looking -  while Mom was upstairs in the linens, laces and sewing stuff. We would walk among the washing machines and other appliances with our tongues showing from open mouths. And once in a great while we would go up to the top floor where the manager's offices were and wonder about the big decisions being made beyond those oak doors.

 

Wed, 12/28/2011 - 09:51 | Link to Comment Willzyx
Willzyx's picture

When I was a kid, I liked to sit on the riding lawn mower, and play with the exercise equipment

Wed, 12/28/2011 - 03:57 | Link to Comment HungrySeagull
HungrySeagull's picture

Those doors contained nothing more than a bunch of prissy birds pecking at each other from big bird, the Madam all the way down to poor cinderilly who has filled out a employment form.

All lived in fear of month's end where the BIG bosses come and review same store numbers.

 

The sales people you saw on the floor in the merchandise floors down below did not matter. They either performed or were replaced with those who will.

Tue, 12/27/2011 - 20:04 | Link to Comment Joseph Jones
Joseph Jones's picture

Sears took a suicide turn several decades ago when they stopped selling:

  1. The electric guitar case with built-in battery-powered amplifier
  2. Mopeds and light-motorcycles

Dumb and dumber!   

Tue, 12/27/2011 - 19:42 | Link to Comment PulauHantu29
PulauHantu29's picture

I've seen Sears deteriorate the past few years also...the stores look dismal, salespeople unknowledgeble, Sears credit card delinquencies soaring....

Good to read your article about what the cuase is. I had a feeling it was poor management but you confirmed this.

I also see poor mgmt at Netflix. The site is down on some of the most astounding times---like Sunday night prime time! ...not to mention the recent totally crappy move. That CEO should have been history ASAP.

Wed, 12/28/2011 - 03:55 | Link to Comment HungrySeagull
HungrySeagull's picture

Another time, the CEO of Movie something said ef it! CLose it all! and it was a back in page 30 reporting. ZH picked up on it and sure enough a few months later a few dozen rental places went to the employment line and the building for sale. It has yet to be bought.

Tue, 12/27/2011 - 19:37 | Link to Comment PulauHantu29
PulauHantu29's picture
CHART OF THE DAY: Home Prices Are Still Falling

 

The October Case-Shiller 20-city home price index missed economists' expectations, falling 3.4% year-over-year.  Only two cities saw prices increase: Detroit and Washington.

Month-over-month, the 20-city index fell 0.7% on a seasonally adjusted basis.  This too was worse than the 0.4% decline forecasted by economists.

Read more: http://www.businessinsider.com/chart-of-the-day-housing-market-2011-12?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Chart%20Of%20The%20Day&utm_campaign=Moneygame_COTD_122711#ixzz1hmV3ViWz
Tue, 12/27/2011 - 19:08 | Link to Comment Zero Govt
Zero Govt's picture

Remember many years ago a story about a Granny Share Club whipping the arse of the entire US Hedge Fund industry simply by investing in the retailers they liked (ie. car parks were full, the shops buzzing and the store staff helpful and friendly)... not genius, just plain old common sense

..of course nowadays it's more important to have a multi-million Dollar computer front running buy/sell orders in the milli-seconds between brokers desks and the exchanges then throwing a few scraps of small-time insider dealers to the regulators to make them look like they're 'doing something' while you rig the whole market  

Oh for the Good Ol' Days

Hope you had a great XMas Reggie, looking forward to 'shorting season' in 2012 

 

Wed, 12/28/2011 - 02:33 | Link to Comment Freddie
Freddie's picture

You are not thinking about The Beardstown Ladies are you?  The whole thing was a scam because the old bags could not do basic arithmetic and no one error checked the book. 

Wed, 12/28/2011 - 12:41 | Link to Comment Zero Govt
Zero Govt's picture

they were probably fleeced by the Rothchild market rigging mechanisms too 

Tue, 12/27/2011 - 18:59 | Link to Comment CreditcalMass
CreditcalMass's picture

Report posted January 2009, when the stock was trading in the low to mid 40s shortly before it ran to 120 just over 13 months later. The analysis is good, but the timing is awful, and therefore, untradable.

Tue, 12/27/2011 - 19:15 | Link to Comment oddjob
oddjob's picture

Short AZO. Insert ugly pictures of self here.. Then panhandle for money.

Tue, 12/27/2011 - 18:40 | Link to Comment Heyoka Bianco
Heyoka Bianco's picture

Nice analysis Reggie, but the start of the story points out why any "retail" investor who buys individual stock, long or short, is always the proverbial sucker sitting down at the table. What's that saying about irrational markets and personal solvency?

 

If you can't tell me exactly when and at what price, what difference does the why and how make?

Tue, 12/27/2011 - 18:29 | Link to Comment indio007
indio007's picture

Sears has some of the worst service imaginable. I could  easily post 10 horror stories. Any store that makes the act of purchasing a product difficult is doomed.

 

I can't wait till Best Buy goes under they have some seriously deceptive practices that happen often enough where it can not be an accident. 

Wed, 12/28/2011 - 03:53 | Link to Comment HungrySeagull
HungrySeagull's picture

Best buy is already corroded.

 

I like to build computers and say so to the pimply faced kid asking if I would like a laptop this year?

 

This holiday season, I never went to best buy. Newegg via internet order took care of everything.

Tue, 12/27/2011 - 19:28 | Link to Comment moneymutt
moneymutt's picture

actually, Best Buy will temporarily benefit from this as Sears is big competition in their appliance segment...appliances is one area consumers always rated Sears highly, its not like Home Depot has great customer service in that area.

Best Buy has until recently done reasonably decent with online sales, but they really messed up there this season.

Best Buy will decline, they will close stores, and they'll have to down size stores too, but there is probably always a niche of retailer of electronics for dummies, just a matter of how well they downsize and position themselves for that market. Problem is, techonology gets easier everyday, and kids grow up knowing it now....how much help do you need buying an Ipad or a Kindle Fire? Also smart phones and tablets are wiping out a lot of the market for things Best Buy sold....TVs (yes kids less interested in big screen) desktops, CDs, DVDs, DVD payers, game consoles, game cartridges, gps devices, settop boxes etc...and who needs Best Buy to buy a tabler or a phone, theres the corporate phone stores, good local chains with sma ll nimble stores, Radio Shack etc.

I keep looking at all the stuff in my house I used to have to store and it needs to go, its been replaced by digital products and two devices: books, CDs, DVDs, game consoles, video game cartridges, scrapbooks and boxes of photos....if the house lights on fire, I'll grab my dog my Ipad, my Android phone and not miss much but my favorite pair of old genes and some kitchen gadgets.

Tue, 12/27/2011 - 19:30 | Link to Comment moneymutt
moneymutt's picture

so where does that leave brick and mortar retailers: selling fresh food and gas for cars

Wed, 12/28/2011 - 00:07 | Link to Comment sun tzu
sun tzu's picture

Electronics yeah, but not clothing and other products. 

Tue, 12/27/2011 - 22:44 | Link to Comment SystemsGuy
SystemsGuy's picture

Pretty much. Restaurants are probably one of the few exceptions, because those trade on fresh cooked food and ambiance, and even there, most places deliver, and with a smartphone or tablet, they can deliver even if you're on the move. Coffeeshops, perhaps - Starbucks figured out a long time ago that ambiance plays a big part in their sales - people prefer to stay there to consume their products. Grocery stores are moving back to the general store model, where they essentially had a large warehouse in the back and then delivered the goods requested to the customers. Auto repair shops. Captive transport points - airports, larger trains stations and so forth.

I know a number of specialized retail owners that don't even have storefronts - all of their business is over the web. They don't want to deal with the overhead of a showroom, staff, permits and so on. Generally they're dealing with narrowly focused clientelles and may end up putting up kiosks at conventions or trade shows, but beyond that they're pretty much virtual. That I think is retail in the 21st century. Lots of microproducers work with clearly defined but potentially narrowcast markets, interacting with them as part of an online community of interest, and meeting with them at specific offline venues. Walmart loses out to Amazon, because Amazon doesn't have to maintain shopfloor inventory. 

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