Why Sears Isn’t Likely to Be Where America’s Investors Shop
Sears, Roebuck & Co. (S)
Jim: Here’s a challenge, Mike: Can we discuss Sears without making some stupid play on words with its “softer side” slogan? I mean, if I see one more newspaper or magazine snicker about “the softer side” of Sears being its profit, or its fuzzy strategy, or its . . . .
Mike: Don’t worry, I’m happy to break the mold. But I have to tell you, I’ve always had a problem with Sears both as a company and a stock. For as long as I can remember, Sears has been searching for the formula for reliable growth but keeps coming up short. And that’s the case now, in fact.
Jim: It does seem as though it’s tried about everything. Sears, of course, is the venerable mass merchandiser that’s somehow survived the huge changes in retailing over the years. And its stock, which currently trades in the mid-40s, is still in the Dow Jones industrial average.
Mike: But it also always seems to have these bizarre sideline stories attached to it.
Jim: I know. In the ‘80s it trumpeted diversification and owned the Discover card, the Dean Witter brokerage, Allstate insurance. That led to the famous quip about Sears being “in stocks ‘n’ socks.” Ultimately it got rid of them all to focus on its basic business of selling clothes, Craftsman tools and Kenmore washing machines.
Mike: One day Sears is high style with low prices, then it’s low style at reasonable prices, then it’s going to be stylish clothes plus stock brokerage, or it’s going to be fixing cars and selling furniture. It’s one damned thing after another.
Jim: In recent years, though, it’s pretty much settled on just retail. In fact, it also bought the Orchard Supply Hardware chain.
Mike: Yes, but to me the basic problem is that Sears as simply a retailer is in a very difficult place because it’s being clobbered by the competition on all sides.
Jim: Right. It’s getting whipsawed by Wal-Mart and Dayton Hudson’s Target on the discount side, by the likes of Nordstrom on the upscale side and by outfits such as Best Buy and Circuit City Stores on the electronics side.
Mike: Exactly, and you’re identifying retailers that have consistently outperformed Sears in sales growth.
Jim: OK, but let’s give credit where it’s due. The guy who runs Sears, Arthur Martinez, led the company through an impressive comeback during the mid-1990s. Let’s be honest: I can remember going to a Sears store a few years ago . . . .
Mike: It was a pretty depressing experience.
Jim: Was it ever.
Mike: You almost wanted to bring a broom to sweep up.
Jim: It was awful. The stores were messy, the merchandise was skimpy, the help was useless. But there’s been a huge improvement under Martinez. And he’s also responsible for the “softer side” effort to sell more apparel to women. . . .
Mike: You mean while the guys were elsewhere in the store picking up their power tools.
Jim: And it was a huge hit. But it didn’t come cheap. Since launching that campaign in ‘93, Sears has spent more than $4 billion to promote it.
Mike: But now, once again, Sears’ growth has stalled.
Jim: Big time, and apparel is one of the major weaknesses. If you look at same-store sales--that is, those of stores open at least a year--you see that not only are Sears’ monthly same-store sales not matching the industry’s growth, they’ve been falling lately. Even during the busy Christmas holiday season. In December, when the average retailer posted a 5.2% sales gain, Sears’ sales fell 0.3% from a year earlier. That’s bad.
Mike: That’s also why the stock has plunged nearly 30% since last June.
Jim: Now, one theory is that previously Sears’ earnings and sales had grown at a faster pace because Sears made its credit card available to almost anyone. In fact, some people think Sears is as much a bank as a retailer, because its credit operations are huge.
Mike: Sears doesn’t seem to do very well at banking either, does it?
Jim: Yeah. Turns out a lot of customers went delinquent on their cards, so Sears tightened up its credit policies to stem the defaults. And guess what? Its sales growth slowed down. Whether that’s the major cause of its sales slump or not, I wouldn’t buy this stock.
Mike: You know, I came into this conversation really wanting to recommend this stock, but, as I’ve done many times, I’ve talked myself out of it.
Jim: The stock is cheap, selling for only 13 times ’98 earnings.
Mike: So what? Its sales are dismal. There’s certainly room for improvement here, but it’s hard for me to shake the impression of Sears as a constant underachiever. And frankly, I can’t see myself bothering to go to Sears until I need a new set of tires.
Jim: That’s a little harsh. Sears is still a big favorite, especially of the middle class, whether it be for clothes or household furnishings or electronics.
Mike: OK, and I concede its Kenmore appliances are very good as well.
Jim: But it’s true that you can find just about everything Sears sells at competitors’ stores, and therein lies its problem. Sears still hasn’t found the way to consistently push up its overall sales by convincing the world that it’s offering exceptional value throughout the store. Until it does, the stock is an also-ran.
Is there a stock you would like to see discussed in this column? Michael Hiltzik can be reached at michael.hiltzik@latimes.com; James Peltz can be reached at james.peltz@latimes.com. Or write to either at Business Section, Times Mirror Square, Los Angeles, CA 90053.
