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Walter Loeb: Why Sears is the dying dinosaur of the retail business

Sears Holding is losing customers at an alarming rate, which has had the impact of Sears earnings slipping badly and burning massive quantities of cash. Walter Loeb, a former senior retail analyst at Morgan Stanley for 16 years, is highly critical of the once-vaunted retailer, he wrote in a column today in Forbes. Not only does Loeb have credentials as a retail analyst, he had a 20-year career with such retailers as Macy’s, May Department Stores and Allied Stores.

A shopper leaves the Sears store in the Loop on January 22, 2014 in Chicago, Illinois. Shoppers are abandoning Sears in droves, as the once vaunted retailer is faltering.
Photo by Scott Olson/Getty Images

"I have to shudder at what has happened at Sears over the years. It is the dying dinosaur of retailing," said Loeb.

"But Sears once had enormous customer trust, admiration, and loyalty. Sears was known for its hardline products. Over the years, especially under current leadership, the company has ignored customer preferences. Management has no understanding of what the customer wants," said Loeb which is evidenced by a recent earnings report which reported its most recent loss of $402 million, or $3.79 per share, for the period ended May 3.

In addition, Sears Holding is burning cash at an alarming rate. The reason, Loeb says, is that "Sears has ignored new trends, has reduced their staples and basics, and has relied on a flawed loyalty program in a flawed attempt to bring customers to the stores."

That loyalty program is the "Shop Your Way" rewards program that Sears C.E.O. Eddie Lampert claims is the company savior. But Loeb isn't buying it.

He is also critical of the damage done to the "exclusive" Sears brands. "The company has given up its exclusive control over core brands like Craftsman tools, Die Hard batteries and Kenmore appliances, by making these brands available through other retailing outlets. Important stores have been sold to satisfy investors and Lands’ End has been spun off eliminating an important source of future income needed to sustain Sears."

Loeb acknowledges that retail is not easy. "I know a lot of people, but I have known very few who can execute on all these levels. A few who come to mind that have what it takes are Sam Walton, Stanley Marcus, Terry Lundgren, Mickey Drexler, Bernard Arnault, and the Nordstrom family. Sure, Sam Walton with his entrepreneurial style created a new path for his discount stores. But his vision and values are difficult to sustain after his death and several leadership changes."

Loeb has praise for some retailers, singling out Mickey Drexler of J.Crew. "Of course, J. Crew’s Mickey Drexler is held in high regard since he understands how to merchandise to his focus customers. I feel Bernard Arnault has led a merchandising, marketing, and operational vision to create an international chain of luxury fashion brands under the LVMH banner that is understood worldwide. And Nordstrom management’s unique attention to service at all levels of their business has created a strong bond with customers."

What is similar about Walton, Marcus, Lundgren, Drexler, Arnault, and Nordstrom is that they merchandise to their best customers.

Loeb concluded that on a long-term basis, relying too heavily on prices is going to fail for three reasons.

"One, the customers gets so used to sales she becomes unwilling to shop at any other time," said Loeb. "Two, stores over-promote and ignore the fact that it is a fashion business that creates loyalty."

And lastly, "Stores that rely on sales will fail – they cannot succeed in convincing customers of their true value proposition. If price remains the key point of differentiation, above merchandising, we will be faced with another round of store closings—and Sears will be leading once again."


Forbes - Why Sears Is The Dying Dinosaur Of Retailing

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