By Neil Saunders
According to a report in the Wall Street Journal, Eddie Lampert has managed to avoid the liquidation of Sears after sweetening his bid for the ailing chain. This means that around 400 stores will remain open.
While a shrunken Sears will be more viable than the larger entity that struggled to turn a profit, we remain extremely pessimistic about the chain’s future. Sears exits this process with almost as many problems as it had when it entered bankruptcy protection. In essence, its hand has not changed and the cards it holds are not winning ones.
Our first major concern is that, to survive, Sears needs to create a compelling proposition for consumers. Given the long-term erosion of the brand and the severe underinvestment in store assets, this will be a tall order. A smaller business may make some of this change easier to engineer, but it will take years to accomplish and it has to be done against the backdrop of a highly competitive retail market.
Our second concern is that Eddie Lampert has an extremely poor track record of creating positive change at Sears. While his ability to keep the chain alive is praiseworthy, his retailing skills leave a lot to be desired. If Sears is to survive, then it will require an enormous mindset change in terms of the way the business is run. We just cannot see this coming about.
Given the scale of the challenges, today’s rumored decision does not mean that Sears has emerged into the sunlit uplands of retail. It is still a broken business that is surrounded by gloom. The path it takes from here is now very much down to Eddie Lampert.
Neil Saunders is managing director of GlobalData Retail.