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USA: Sears Is Now Closing Nearly 250 Stores In 2017

USA: Sears Is Now Closing Nearly 250 Stores In 2017

Junio 19, 2017

Autor/Fuente: Elephant Analytics, Seeking Alpha 👤Periodista: María Alejandra Lopez 🕔19.Jun 2017


Sears Holdings (SHLD) continues to close stores at a rapid rate, with the latest count indicating 245 store closures in 2017. This is helping Sears get to its $1.25 billion annualized cost savings goal. Sears is also losing a substantial amount of revenue from store closures though, as its cost savings initiatives will result in probably at least $2 billion in lost revenue.

Savings Come With A Revenue Hit

Sears mentioned that it expects $1.25 billion in annualized cost savings from its initiatives, but it appears that the bulk of those savings will come from store closures. Those store closures will also result in a significant revenue loss. Sears indicated that the initial 150 stores set for closure had generated around $1.2 billion in revenue. Thus its current store closure list probably is associated with around $2 billion in revenue.

That revenue loss could be higher if Sears is also doing things like reducing advertising as a way to reach its $1.25 billion cost savings target. Sears is eliminating approximately 400 full-time positions at its corporate offices and support functions, as well as some field operation positions. Those are not directly revenue generating positions, but the savings from those particular job cuts don’t seem like it would be much more than $100 million. Thus most of the $1.25 billion savings appears to be coming from store closures and perhaps reduced advertising and other items that would affect revenues.

Inventory Reductions

As noted above, Sears’s cost savings initiatives will likely have a much smaller than $1.25 billion impact on its EBITDA due to the associated revenue loss. However, its cash flow should benefit significantly from the reduced inventory levels as stores close. In 2016, Sears closed 206 Kmarts and 35 full-line Sears and managed to reduce its net inventory (inventory minus inventory payables) by $687 million. In 2017, Sears is planning to close at least 175 Kmarts and 70 full-line Sears, and could still add to that count. Thus, Sears could benefit by hundreds of millions from its reduction in net inventory. The benefit may not be as much as in 2016 though since that year also involved a significant reduction in inventory per store.

Read Also: Macy’s taking new approach to promotions, media, loyalty 

 The inventory reduction should improve Sears’s operating cash flow up from the negative $880 million per quarter run rate it recorded in Q1 2017. In Q1 2016, Sears had negative $722 million in operating cash flow, and ended the year with negative $1.381 billion in operating cash flow. While 2017 operating cash flow that could be worse than negative $1.5 billion is nothing to be proud of, Sears can probably manage through that for another year via asset sales and loans from ESL.

Kmart Store Base Keeps Dwindling

Although Sears has previously denied that there were plans to close the Kmart format, Kmart is nonetheless shrinking at a very rapid rate. Kmart has been more affected than the Sears format by store closures, with at least 175 Kmarts set to close in 2017 compared to 70 Sears locations.

This will bring the number of Kmarts remaining by the start of 2018 down to 560 stores, which is a 57% decrease since the beginning of 2012 and a 40% decrease since the start of 2016. If Kmart is still around in a few years, it will likely be with a very small store base.

Shop Your Way Has Challenges

Shop Your Way sometimes gets mentioned by Sears bulls as something that is quite valuable, but I’m not seeing much information to back that up. Shop Your Way does have a large current member base, but those members appear to be spending less. As well, Shop Your Way’s online reach appears to be diminishing as shown by measuring services such as Alexa, SimilarWeb and Quantcast.

Read Also: Nike to cut 2 percent of workforce, eliminate shoe styles 

Although these measuring services may have some accuracy issues in terms of estimating actual visitor numbers, they are more directionally accurate for identifying traffic trends. In this case, we have multiple measuring services indicating that Shop Your Way’s online traffic is likely declining, which also matches up the information that shows that Shop Your Way member revenue is also likely declining.

The amount of new users joining Shop Your Way appears fairly modest as well. The Shop Your Way Android app has over 1 million lifetime downloads, but is estimated to have been downloaded only 7,000 times in May, while the Shop Your Way Apple store app is estimated to have been downloaded 9,000 times in May. I’ve found app download estimates to be fairly accurate before. App rankings are publicly available, and app intelligence companies have actual download data from some apps, allowing for accurate estimates of other apps.


Sears is closing a large amount of stores in 2017, including around 24% of its Kmart store base and 10% of its Sears store base. This will primarily benefit it by allowing for a large reduction in inventory, which will help its cash flow and probably result in Sears being able to survive another year. The $1.25 billion cost savings does come with a likely $2+ billion negative impact on revenue though, so it is hard to see Sears’s coming close to stemming its cash burn, especially with a double-digit decline in comparable store sales.

Source: Seeking Alpha 

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