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J C PENNEY COMPANY INC

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Empty shelves, poor customer service speed Sears' decline

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10/12/2018 | 04:47pm EDT
FILE PHOTO: Store closing signs advertising discounts at a Sears in New Hyde Park, New York

(Reuters) - Sandy Hetrick drove 15 miles from her home to a Sears in Media, Pennsylvania on Wednesday to buy folding chairs and clothes.

Her local Sears in Wilmington, Delaware, the 54-year-old retiree said, was so poorly stocked that she stopped going there, even though there is no Delaware state sales tax.

"It's really going down," Hetrick said about Sears, which is weighing whether to file for bankruptcy protection in the coming days.

"You can't find any help. The stores have minimal items," she said as she shopped at the store in Media.

A change in sentiment among previously loyal shoppers like Hetrick has contributed to the retailer's sharp decline in sales. Sears losses have continued to mount to over $11 billion from its last annual profit in 2011. (Graphic: With Sea
rs' future in doubt, vendors begin pulling back - https://tmsnrt.rs/2A3giRQ

On Friday, Reuters was first to report that Sears is planning to close 150 stores and keep at least another 300 open as part of a plan to restructure under U.S. bankruptcy protection. On Thursday, Reuters reported Chief Executive Eddie Lampert is exploring a bid for some of the retailer's businesses and real estate.

Sears did not respond to multiple requests for comment. In September, the retailer said it is cutting down on lower-performing products and becoming more aggressive in clearing out seasonal merchandise. It also expanded the assortment on its online marketplace, which allowed it to add more popular brands.

Sears also said it continues to take steps to improve its in-store experience for shoppers, without offering details.

It has made attempts to sell its products like tires and Kenmore appliances on Amazon.com Inc website to offset the decline in traditional shoppers.

Even so, its annual sales have dropped nearly 60 percent to $16.7 billion.

The retailer's problems, according to shoppers, former employees and vendors interviewed by Reuters, range from its limited assortment of merchandise to poor customer service. In addition, some said, the retailer abandoned basic shop-keeping standards such as clean stores. And Lampert's leadership over the years has hurt it more than helped.

The retailer, which for decades was the Amazon.com of its time, branched into industries as diverse as insurance, real estate and even broadcasting. A sign of its corporate power was the 110-story building called the Sears Tower, once its corporate headquarters in Chicago and the world's tallest building for a period of time.

Hetrick shopped at Sears since she was a child, and said she recalls looking forward to its Christmas catalogs. But nostalgia for the Sears hallmarks, from the catalog to Craftsman tools, has not helped the 125-year-old department store bring customers through its doors in recent years.

The retailer lost its allure with shoppers after shrinking its total store locations by over 70 percent in less than a decade. Sears runs nearly 900 stores, including the Kmart chain. As of February 2018, the retailer said it employed about 89,000 workers in the United States, compared with 246,000 people five years earlier.

Over that time, the number of consumers open to shopping at Sears dropped to 14 percent on June 1, 2018 from 28 percent on June 1, 2013, according to data from YouGov BrandIndex, a company that tracks public perception of brands.

Only 9 percent of U.S. millennials - aged 22 to 37 years - said in 2018 they would consider buying goods from the retailer, it said.

KMART EFFECT

Some former employees said the retailer started going downhill in 2005 when it merged with Kmart, a deal engineered by Lampert. In 2004, when the retailer announced the merger, it was the third-largest in revenue behind Walmart Inc and Target Corp.

Customers used to be able to check out in any department in the store, and there was always someone to ask for assistance, said Judy Davis, 81, of Banning, California, who retired from Sears in 1999 after working at the Cerritos, California, store for 27 years. After the Kmart merger, the checkouts were placed in one corner near the store exit, and cashiers could not leave their registers, she said.

"They really used to promote customer service. That went out the window," Davis said.

At the Pennsylvania store John Fullerton, a 60-year-old truck driver who visits Sears to buy clothes, tools and appliances, could not find a salesperson to check him out.

"There's no traffic coming through here," he said referring to the store's empty aisles.

Lampert's lack of experience in the retail business was the biggest reason Sears' fortunes took a turn for the worse, said Chad Brand, president of Peridot Capital Management, which holds Sears bonds.

"What I think he missed was realizing that when your competitors are investing that capital and you are not, you are going to lose customers to your competition," he said.

Lampert and his representatives were not available for comment.

Ray Wimer, assistant professor of retail practice at Syracuse University's Martin J. Whitman School of Management, said the story of Sears over the past year has been about trying to rework the $134 million debt payment coming due. But the bigger issue is how bad merchandising hurt performance, he said.

"Look at J.C. Penney (that has some similar financial issues) - launching a new brand Peyton & Parker on Oct. 19. I can't remember the last time Sears launched a new brand to excite the customers to shop," Wimer said.

The inability to hold onto customers is also tied to Sears' failure to keep its shelves stocked. Reuters reported a year ago how many vendors started pulling back shipments and began demanding stricter payment terms.

Brett Rose, CEO of United National Consumer Suppliers, a wholesale distributor of overstocked goods such as garden tools, beauty products and toys, stopped shipping to Sears and Kmart about three months ago.

"If you can't go into Sears and buy Levi's or Dungarees that used to be there, why are mom and dad still going there," Rose said, highlighting that its store shelves are occasionally empty. "If they don't have the products their core customers need, they lose them."

A spokeswoman for Levi Strauss & Co, which owns Levi's, said it still supplies to Sears. VF Corp, which owns Lee Dungarees, did not respond to requests for comment.

Dennis Gansemer, 77, who worked at the Dubuque, Iowa, store for 27 years before retiring, said it was a good company "until they had people running it that didn't know what they were doing."

"How do you go from being number one to being 'Who?'," Gansemer said.

(Reporting by Nandita Bose in New York and Tom Hals in Media, Pennslyvania; Additional reporting by Suzannah Gonzales, Richa Naidu and Karen Pierog in Chicago and Melissa Fares and Nathan Layne in New York; editing by Vanessa O'Connell and Edward Tobin)

By Nandita Bose and Tom Hals

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AMAZON.COM 1.74% 1742.15 Delayed Quote.15.99%
J C PENNEY COMPANY INC -0.59% 1.69 Delayed Quote.62.50%
TARGET CORPORATION 1.59% 77.88 Delayed Quote.15.99%
VF CORPORATION 1.51% 86.06 Delayed Quote.20.63%
WAL-MART STORES 1.26% 99.66 Delayed Quote.6.99%
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Financials ($)
Sales 2020 11 773 M
EBIT 2020 51,0 M
Net income 2020 -237 M
Debt 2020 3 528 M
Yield 2020 -
P/E ratio 2020 -
P/E ratio 2021
EV / Sales 2020 0,35x
EV / Sales 2021 0,34x
Capitalization 536 M
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Number of Analysts 14
Average target price 1,45 $
Spread / Average Target -15%
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Jill Ann Soltau Chief Executive Officer & Director
Ronald W. Tysoe Chairman
Michael Fung Chief Financial Officer & Executive Vice President
Therace Risch Executive VP, Chief Information & Digital Officer
Robert Gerald Turner Independent Director
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