In its midcentury heyday, Sears, Roebuck & Co. was the Wal-Mart of its era—the largest retailer in the world with more than 350,000 employees. But it is in an epic freefall. After decades of decline, the Sears ended up in the hands of investment manager Edward Lampert, who purchased the company in 2004 and merged it with Kmart. The new combined entity, known as Sears Holdings Corporation, was consistently losing money even before the recession. The Sears Tower, the company’s iconic skyscraper, no longer houses any Sears’ employees and—the ultimate indignity—had its name changed to the Willis Tower in 2009. On Dec. 27, it announced that in light of poor holiday sales, 100-120 Sears and Kmart stores would have to close. An even bigger blow came last Friday when CIT Group said it would no longer provide loans to Sears vendors.
CIT is not a household name, but it’s the largest player in what’s known as the “factoring” industry. Factoring companies offer short-term loans to manufacturers so that they can produce goods for retailers in exchange for a percentage of the total order.
Sears claims there’s no problem here, noting that CIT-factored goods are less than 5 percent of its total inventory. But this is clearly a vote of no confidence in a major American brand, and it sent Sears scrambling to implore other lenders not to pull the plug. Credit default swaps offering insurance against a Sears default on its debt obligations jumped to a record high. Markets believe that the end is likely nigh.
Sears is by no means alone among troubled major national retailers. Circuit City, the No. 2 electronics retail chain in America, filed for Chapter 11 bankruptcy protection in November 2008 and now lives on merely as a URL owned by online electronics retailer Systemax. Borders bookstore filed for Chapter 11 last September, only to find that nobody wanted to buy the business at any price, compelling it to liquidate. Filene’s Basement was sold in April 2009 to Sym’s, but that combined firm headed into liquidation last November. And Barnes & Noble, rather than seeing its sales lifted by the collapse of its main rival, has watched its stock take a pummeling even as sales of its Nook e-reader rise, prompting efforts to spin the device off as a separate entity rather than lash it to the corpse of a dying retail chain.
Tolstoy wrote that each unhappy family is unhappy in its own way, but while each troubled big-box chain has a unique story, there’s a common enemy: the Internet.
Online retail sales this past November and December were up 15 percent compared with late 2010. In the third quarter of 2001, e-commerce sales were 3 percent of all retail (including food) sales in America. By the third quarter of 2011 (i.e., before the Christmas surge was fully incorporated into the data), that was over 12 percent. The move toward online shopping is relentless, driven by both convenience and the ability of Web-based retailers to largely avoid paying sales taxes. As mobile devices become even more useful for shopping, online retailers will grow faster.
There has been a furious recent debate about whether or not to lament Amazon’s ability to put your local independent bookstore out of business, but the debate itself shows what a bad position major chains are in. Some people feel sentimental about independently owned neighborhood stores, and many of them will find ways to turn those good vibes into a viable business strategy. But nobody feels sentimental about Kmart and Sears. That’s why the mall vacancy rate is still near its recessionary high point, even though retail sales have revived. Individual big-box retailers may still prosper, of course. Wal-Mart, for example, may well succeed in its effort to push into the big city markets that have thus far eluded it. But that kind of growth will come largely at the expense of existing supermarkets and other incumbents. As a whole, the big boxes will find themselves fighting over a brick-and-mortar retail pie that will almost certainly be stagnant or shrinking even if overall economic growth strengthens. Sears may go down sooner than some of its competitors, but at least, like Woolworth before it, it’ll leave an iconic skyscraper behind as its legacy. Most will simply vanish without a trace.
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