Sears Canada’s demise was far from inevitable: Chalk it up to another case of bad parenting.
Sears Canada Inc. is one of those troubled kids that can blame the bulk of their woes on a bad parent.
A 131-store chain is heading for liquidation this week, an ugly end to a 65-year-old franchise that can be traced back to a series of bad decisions by Edward Lampert, chairman and chief executive officer at Chicago-based Sears Holdings Corp. and controlling shareholder in the Canadian subsidiary.
Mr. Lampert made his name as a financial whiz when he left Goldman Sachs Group Inc. and founded ESL Investments Inc., the hedge fund that controls Sears and Kmart. He ruined that reputation by thinking those finance skills would make him a great retailer.
Sears’s woes can be explained with a few simple numbers.
The first number is $1.90 (U.S.). That’s how much, a square foot, Mr. Lampert and his team were investing annually on Sears outlets in the United States, according to research done two years ago by Matt McGinley, an analyst with Evercore ISI Institutional Equities. In contrast, Wal-Mart Stores Inc. invested $9.70 a square foot in its stores during that same period, according to Mr. McGinley.
For a Canadian perspective, think of the renovations seen in recent years at Sears rivals such as Canadian Tire, Home Hardware and even Loblaws, which rolled out the Joe Fresh clothing line. Contrast those spiffy new stores with what you saw on your last visit to Sears. Consumers gravitate to the best shopping experience and the only way to win those customers is to constantly spruce up your space.
Here’s another number: $5.8billion. That’s how much Mr. Lampert spent buying back stock in Sears Holdings in a five-year period. In a 2007 shareholder letter, Mr. Lampert said: “We will not spend money on capital expenditures to build new stores or upgrade our existing base simply because our competitors do. If share repurchases or acquisitions appear to be more productive, then we will allocate capital to those options appropriately.”
Sears Holdings bought back its own shares at prices of up to $170. As shoppers increasingly steered clear of the stores, that stock has steadily declined to $6 levels, and the U.S. parent is warning that it may follow the Canadian subsidiary into creditor protection. At some point, Mr. Lampert needed to wake up to the fact that his competitors were on to something when they plowed money back into the business.
One final number: five. That’s the number of chief executives and presidents Mr. Lampert has seen come and go at Sears Canada in the past four years. Each leader brought their own strategy and sensibilities. Each departure and arrival meant switching the retailer’s focus and trying something new.
The story Sears Canada veterans are spinning this week is that there was something preordained in the chain’s decline. Former CEO Mark Cohen called it “a most unfortunate but inevitable end to an iconic Canadian company.”
That just doesn’t fit with the experience of rival chains, where the owners are steering clear of hand-wringing and focusing instead on building their business.
Consider what is taking place at Loblaw Cos. Ltd., where the stock price is not far off all-time highs. The grocery chain had its stumbles in the past, in part as it rolled out new technology, but the Weston clan kept driving forward, recently reinventing the business by acquiring Shoppers Drug Mart.
Same story at Alimentation Couche-Tard Inc., where management has built a global leader in corner stores by consistently plowing money back into the business. South of the border, Wal-Mart is moving from strength to strength; its stock is also testing all-time highs as the chain rolls out an online strategy that is expected to result in a doubledigit increase in sales.
There was nothing inevitable about the demise of Sears Canada. The experience of rival chains shows it’s possible to reinvent stores and keep customers coming in the door. The fact that Sears Canada ended up as retail roadkill reflects a failure in leadership.